How risky is currency trading?

How risky is currency trading?

How risky is currency trading?

Written by Emerging Market Capital FX (EMCFX.com)

Risk is the tolerance level an investor can handle or afford to lose. All investments have some risk including stocks, 401k, mutual funds, bonds, futures, options, derivatives, currency, forex, etc For example, a 401k plan has lost nearly 40% in the past year. How will this affect the investor? Could he have done something to control or manage the loss in his 401k? The majority of investors rely on brokers' or bankers' knowledge to inform them on their losses. But in reality these brokers and bankers don't mange their funds. They pool the funds and a fund manager manages these accounts. The investors will never be able to discuss their retirement with these fund managers. Only hear the excuses from the broker or banker.

Here is another example, the majority of day traders will buy only as many stocks as they can afford. When the stock they purchased goes against them the only thing they can do is hold the shares or stock certificates until they rebound. There is nothing else they can do until then. This is not a trading strategy but holding a share and hoping it goes up. But what if the stock goes against them for over a year or longer. All you can do is watch these shares or missed opportunities evaporate. Unfortunately, this happens every day by many.

There are day traders who will trade the currency market and over 90% of them lose their money on margin calls because they fail to realize or understand how margin requirements work. Opening too many positions over exposes these traders. Greed is the culprit. This is inexperience rather than a risky market sending these day traders to failure.

A fund manager understands how to manage risks and what risk tolerance an investor has. Some investors would like to see a better return on their investment or have a clear understanding of realistic expectations. They need to understand that there is no such thing as a guarantee of a 40% or 400% return each month. A more realistic expectation can be a 1% return on their investment each month.

Currency trading is only risky when you don't know how to manage the risks or by doing nothing at all. Understanding margin requirements and being proactive is key. Having a trading strategy entry points, scalability, and exit points along with formulas and ratios is essential for a disciplined trading strategy to help minimize risks.

2010 EMCFX

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