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Currency trading can be very profitable and there is a constantly growing community of retail traders who are trading every day. But even though currency trading can be very lucrative, it can also be very risky as there can be a lot of money to be lost as well. What are the major risks you can be faced with when trading currency and how can you look out for them?
Large Fluctuations in The Currency Trading Marketplace
Fluctuations of foreign exchange can be risky if you are trading because fluctuations between the time you place a trade and the time you close the trade could cause significant loss up to your entire investment. If there is leverage involved and the exchange rates fluctuate unfavourably, you could face very large losses. Contracts differ, some might only let you lose your entire investment and other may cause you to lose more than your investment because of leverage. You should always watch out for this.
Price Set By a Currency Trading Dealer- No Set Marketplace
With forex trading there is no set marketplace and you therefore have to rely on the dealer’s price for the currency. This means that you may not necessarily get the best price and that could eat away at your investment.
Online Systems Can Fail in Currency Trading
Most of the foreign exchange trading done today is done via the internet through a site using an automated system. As technology goes, things can go wrong. In the case of forex trading, if that system has down time, you could miss out when rates are favourable and in some cases risk losing your entire investment.
Stay Away From the Following Claims by Currency Trading Companies
As cliché as it might sound, it stays true, if it sounds too good to be true it generally is. If a company states that they guarantee a rather large return; in forex trading there is no such thing as a guaranteed return. Companies that claim foreign exchange trading with them has little or no risk is misleading you.As you are well aware, foreign exchange trading can produce profit, but it can also produce a lot of risks as markets are volatile at best.
Lastly, read about the company and look out for a solid history before you start doing business with them. Companies without history should automatically raise red flags for you and you should definitely steer clear of them.