It’s quite easy to get caught up with thousands of Forex promotions covering the internet and think as if Forex is a risk-free fun activity. Sure it may be fun sometimes, but it is most definitely not risk-free.
Because of this misconception, many people end up with significant losses in the FX market when they were expecting to make millions. This is one of the reasons why Forex brokers are obliged to disclose information about the risky nature of FX trading and are usually fined significantly if they over-promote their products.
Here are a few reasons why the FX market is more volatile and risky than most others.
If you’re a trader, you are already well aware of what leverage is in Forex trading. You’d also be well aware of how much leverage FX traders get compared to others. For those who don’t know here’s a comparison of the most common leverage height available for traders:
- Cryptos – 1:2
- Stocks – 1:5
- CFDs – 1:30
- FX – can go up to 1:1000
Many FX experts, especially from 55brokers have warned time and time again in their digital material that leverage is one of the riskiest parts of FX trading. Sure it can help beginners land larger traders, but it can potentially lead to larger losses.
If we take a look at this FXTM review it becomes quite obvious how FX brokers read the markets. The more common, “researching the company” tactic that stock traders use is not applicable here. In order to predict and understand how the currency market may move, a trader needs to research and understand the whole market instead of just a small part of it. For example, imagine you’re trying to trade with USD, which means that you not only have to review US economy performance but also its performance outside of the country as well.
According to a leading financial media outlet Forexbrokerlisting, the weight of the research is sometimes too much for many traders, leading to abrupt decisions and significant losses.
The Forex market is also notorious for smaller gains in general, which then forces the traders themselves to either deposit more or use more leverage. This creates artificial risk compared to other markets, where spikes and surges are much more commonplace and significant.