Thursday, 31 August 2017

Risks of Trading Forex Explained

Posted by Valentine at 11:22 Labels:

Not an easy topic, that is for sure. If you are reading this piece, then either you are an experienced trader, you are giving your first steps in the Forex industry or maybe you are just wondering if this business is actually right for you.

No matter really in which category you are in, you’ve all asked yourself at least once the same question: What are the risks involved in Forex trading?

While some bloggers, brokers or experts will make extensive lists about risks, at Fort Financial Services we believe these are the three most relevant risks you should keep an eye on:

Counterparty Risk:

Since Forex trading became available for retail investors, the reputation of this industry has been damaged by schemers and brokerage services that did not comply with regulations, exposing their clients to unnecessary financial risks that left many unfortunates empty handed. While criminal activities would always be part of our world, increasing regulation in the Forex industry helped to create a better articulated, safer and transparent market.

Country Risk:

Forex stands for Foreign Exchange market, which can be also described as the currency market. Each currency traded in Forex belongs to a certain country (except for crypto currencies).

The value of a currency is closely related to the economic strength of the country it belongs. If a country defaults on its debt, its national currency will plunge. If the country’s economy is facing high inflation levels, its currency will be worth less and less each day. On the contrary, if a country reports upbeat economic growth, its currency will likely move upwards against others.

Rate Risk:

Currencies are strongly affected by macroeconomic decisions, such as interest rate moves or the implementation of stimulus programs to boost economic growth. If a rising rates environments strengthens the local currency due to an influx of capital in the light of higher returns, while lower rates have an opposite effect.

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