Any investment that offers potential returns also carries some risk factors. You may lose more than the value of your transaction when trading at a margin. Forex trading includes trading of currency pairs. It also has some risk factors described below:

Exchange rate risk

A change in currency value causes the exchange rate risk. It is the possibility that the price of investment changes when the currency is exchanged. This happens when there is a movement in the exchange rate between the placement of the order and the transaction’s completion. The risk of the exchange rate is related to all foreign investment.

Interest rate risk

Interest rate risk refers to the profit and loss caused by the variations in forwarding spreads and forward gaps and maturity gaps between transactions in the foreign exchange book. This risk is related to currency exchange, future, forward outright, and options. To minimize the interest risk rate, one can set a limit on the total size of the gaps.

Transactional risk

Errors in management, communication, and verifying a trader’s order (sometimes also known as “out-trade”) can cause unexpected losses. Transaction risk refers to the negative impact that fluctuation in the foreign exchange rate can have an entire transaction before it is settled. This transaction’s risk increases when there is a long delay between entering into an agreement and concluding it. The transaction risk can be reduced by using options and forwards agreements to prevent negative exchange rates.

Leverage risk

Foreign exchange usually requires low-margin reserves or trading collateral (such as regulated commodity futures). These margin policies allow for higher leverage. For this reason, a relatively small price in contact can amount to a far more significant and immediate loss than the amount invested.

Some traders may agree to pledge up to 100% of their account assets for collateral or margin for Foreign Exchange trading. Traders should know that during periods of unfavorable performance, aggressive use of leverage will increase losses.

Our Best Trustable Profitable Brokers

Trustable Broker

With a minimum deposit of
$1000
$ 250
  • Credit card deposit
Popular
Pietro Brocca
Pietro Brocca@pietrobrocca93
Read More
I broker sono regolamentati e affidabili, inoltre ti affidano un manager che ti segue passo passo per tutti i passaggi
Massimiliano Vianello
Massimiliano Vianello@maxviane63
Read More
Ho imparato come diversificare il mio capitale sotto vari asset per avere una gestione del rischio più oculata
Alessandro Botola
Alessandro Botola@alebotola92
Read More
Ho iniziato a vedere sin da subito i primi guadagni, pur tenendo un profilo di rischio basso
Previous
Next
On Key

Related Posts

Best Forex long term strategies

Best Forex long term strategies First of all, let’s go by definition. Long-term trading is one that is based on fundamental and technical analysis through

What is forex market?

Previous Next What is forex market? Forex market is the market where traders can purchase, sell, and hypothesize on currencies.  This market is consists of