Forex and contract for difference (CTD) trading is one of the most popular currency and asset transaction models due to its ease of entry. All anyone needs to join the trading scene is an internet-enabled computer, trading knowledge, and capital. However, the market carries a significant amount of risk due to a number of predictable and unpredictable factors. Keep reading to learn more about these risks and how to manage them appropriately.
Systematic risk
This is otherwise known as market risk, and it stands for everything that can significantly impact the currency pair you’re trading. This set of risks, when managed appropriately, can be used to make money in the market. Most financial and governmental policies that affect currency value are classified as market risks.
These monetary policies also include regulations that lead to inflation, unemployment, higher interest rates, and changes in tax policy. Political decisions like wars, terrorism, and industrial action that could affect currency value also fall under systematic risk. In the event of any of these occurrences, you can either lose capital or make more money, depending on your trading capabilities.
Liquidity
Periods of low liquidity can significantly threaten your capital as a forex trader. This usually occurs when banks do not open in some places. During periods like this, you may be unable to initiate and close your trading positions rapidly because there aren’t enough participants in the market. This reality further forces you to make other choices and actions that might dent your trading capital.
Risks related to counterparties
Your broker can make you successful in the market but also make you lose money. If you use non-licensed brokers from poorly regulated markets or countries, you might lose some money in the long run. Counterparty or broker-related risk also includes a bankruptcy on the part of a broker, which will make them unable to pay you.
How can the Finansya Guide help?
Finansya is a platform that offers a wide range of applications and market analysis tools for forex and CFD traders. The applications are made in the form of indicators that display various market tips and trends. With these indicators, you can better grasp leverage, keep an eye on the latest financial news and events, and build an impeccable trading plan. Moreover, the applications can help you practice by starting with a demo account before trading with real capital. This will help you gain a better understanding of the forex market.
Additionally, guides provided by finansya are objective and based on real-life trend monitoring. This aspect will help you manage your emotions while trading and also assist you in setting stops and limits where necessary.
A final word
There’s hardly a risk-free trade when it comes to contracts for difference and forex. The market is volatile, and as such, it mostly favors traders who are prudent and skilled. To level the playing field, use tools, indicators, and applications to help you stay ahead of imminent changes in the foreign exchange market.
