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For those who consider Forex trading to be one of the best available investments, no amount of risks could turn them off. This is not because they minimize the risks associated with the investment but because they understand the specific reasons behind the risk and take adequate measures to reduce risks as much as possible. Here are the top 5 reasons why Forex markets are considered riskier than other trading markets such as equity and commodities. Size – The size of the Forex markets is extremely large. It has been estimated that the total daily trade across the forex markets is more then 5 trillion , more than the total number of trades that take place on all stock exchanges worldwide. The size of the Forex market presents a large opportunity for profit. However, it also presents an equally large possibility of losing money. The Forex market is also considered to be more volatile than the rest of the trading arenas. Minimum lots – To manage the number of retail traders that start trading in foreign currencies, there is a standard minimum lot of base currency that traders must trade in. Most new traders will use leveragein order to meet the needs of the minimum trade lot. Leverage is the ratio of money in the account against the amount of money he is permitted to trade. The amount of leverage offered by Forex brokers differ from one to another. Although higher leverage is can be beneficial to the trader, the risks associated with high leverage are greater. Fundamentals – Forex trading differs from equity or commodity trading. The quotes are always placed in the form of currency pairs and this is one aspect that all new Forex traders must understand. An equity trader may have been trading in the markets for a long time but Forex is a new concept that needs adjusting to. Forex brokers do not charge a commission from their account holders. Another concept that is new in the Forex markets is the concept of pips. A pip is the difference between the selling rate of a currency and the buying rate of the same currency at a specific broker. No global governance – While the forex markets are global in nature, there is no global governing body that regulates these markets. While there are specific regulatory bodies in each country, these are not associated with other bodies in different countries. Given the global nature of the trading and the access that Internet allows traders and brokers, extreme caution needs to be taken to avoid any kind of scam or fraud. Unexpected swings – Technical analysis can help traders in forecasting the manner in which the currency pairs will move. However, currency prices move based on a large number of other factors such as geo political changes, global economic situation, changes in political parties, employment scenarios, import export and much more. These fundamental changes can disrupt any trend line that may have been drawn, irrespective of how meticulously it may have been created. Guy Bondal is a stock broker and a writer in FXacademy.com. All you need to learn about Forex in one place, at your own pace.
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