How risky is Forex trading? If you look at the statistics you will see that 95% of retail currency traders lose their money and of course there are risks trading currencies as there are in any speculation but if you understand the risks you can win.
By its very nature, any investment be it Forex, stocks, bonds or commodities, present investors with risk, because we don't know where the price of any of these investments will be tomorrow so as soon as you put on a position in a currency pair, it can lose you money.
Speculation or Investment
There is no way of preventing any position losing money ALL trades you have in the market have the potential to lose you money. There are many people particularly stock brokers who claim that currency trading is more risky than stock trading. In fact, you will many say that stocks are investing and Forex is speculation but there is no real difference, between investing and speculation!
If you buy stocks or buy currencies, you are risking money end of story. Speculating to many people is associated with the word “gambling” and therefore is not seen as sensible as investing but as we have said, there is no difference between the two its just a different word for the same type of investment one which has an uncertain outcome and you can win or lose money in both.
Forex trading like any other speculation can be like gambling if you don't know how to use probabilities to get the odds on your side but you can. We have looked at this in other articles but in summary - while many people treat trading currency pairs as a gamble its not a game of pure chance and if you have a trading system with an edge and employ good money management, its not gambling but of course many traders treat it as such.
There is a risk but in any speculative market where the price is determined by the psychology of humans there is a risk of losing money as we have seen but while investing in currencies is by its nature risky, the risk can be increased or decreased by the trader. So lets look at how traders create risk and also how to limit risk.
The big attraction of trading currencies, for most traders is the ability to leverage their trades which can of course, increase the potential profits for the traders strategy. Of course if you gear up your trades you, increase the risk as well as profit potential. Leveraging gearing up trades is one of the key reasons traders lose quickly. Their greedy, have no education on volatility or other factors which help set the price of a currency so get wiped out. It should be obvious, that leverage is a double edged sword but new traders, blinded by greed only focus on the upside potential and don't think about the risk and employing proper money management to protect themselves.
Traders also create risk by not having a tested strategy which gives them an edge over the markets. These traders simply rely on their gut feeling to generate trades or take advice from gurus, friends, brokers or what they see in the media. This means they have no coherent strategy, no money management rules and no chance of success. They are making random trading signals with no strategy and luck only lasts for only so long.
If you want “You have to speculate to accumulate” as the old saying goes and its true – you have to take a risk to make an above average profit but you can manage and control risk in various ways:
Don't be lured into using to much leverage – as we have said on many other areas of this site. Take the time to learn about how the pros trade probabilities and get the odds on their side and learn now to employ technical analysis to generate high odds trades set ups for yourself.
currency trading is a risk but so is driving to work or getting on an aeroplane. Everyday in our lives we take numerous risks but were careful when we cross roads or drive cars. Risk by many people is seen as something to fear but the worlds most successful people see risks as opportunities and you should to. If you get the right education in Forex, you won't be able to eliminate risk but you will be able to control it and with the right trading strategy, you will can play the odds and achieve success in the world's best speculative investment for profit – trading global currencies.