Getting into forex takes a lot of hard work and studying before ever jumping into the real game. There are charts to study, styles to ascertain and journals to keep. You can practice with a dummy account and learn the ropes. As exciting as it can be, there is a lot of work that has gone on behind the scenes before the first trade was ever made. But the truth is that even after you’ve done everything possible to guarantee success, there is no failproof method that I know of that will keep your trades safe. Here are some of the potential pitfalls you can watch out for.
You wouldn’t think that the politics of countries across the world would affect what you’re doing in your home office, but they do. Political upheaval can play havoc with interest rates and the economy. This is why traders are always advised to check current events when beginning their trading day. Keep in mind that somewhere in the world, there are probably elections taking place or pre-election preparations going on. With elections there can be political instability, which can mean the currency will suffer. After the elections, you can expect changes to happen quickly and without prior announcements. The new government can change the fiscal and monetary systems overnight. You cannot predict every outcome, but you can track the economic calendar of various countries. Find out when important news events are announcements are expected and monitor the outcomes carefully so they do not impact your trades negatively.
Risk in Transactions
There are risks involved that are related to the various time differences. You may open a trade at one hour in your home country, but by the time you make an exit, the date/time in the country that is holding the foreign currency may have changed. Since the forex market is open 24 hours, you need to pay a close attention to the time differences and to how they affect the market. With time differences, the exchange rates can fluctuate. Traders and corporations dealing in specific foreign currencies can be hit with unexpected transaction fees.
Avoiding Risks with Leverages
Forex trading requires a margin in order to have the leverage needed to get access to reasonable foreign currency trades. Sometimes, in the case of price fluctuations in the currency, the trader will need to add additional funding to the margin. When the market is extremely volatile, using the leverage in an aggressive manor can lead to big-time losses that can be more than the primary investments.
Keeping Your Trades Safe
The bottom line, when trading forex, is to buy and sell foreign currencies to make a profit. The goal is to buy currency pairs low but sell when the price rises. The market is extremely liquid, however, and with the high trading volume it’s vital to take necessary precautions to protect your investments. Whether they’re foreign exchange trades, spot transactions or options, watch the charts, do your homework and play it safe!