why is currency trading high-risk?

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7 Responses to “why is currency trading high-risk?”

SJ:

June 21, 2010 at 3:00 am

Almost anything financial will cost you money when you are learning.

The thing to consider is that if you buy stocks, and somewhat know what you are doing, you have to be right one buy out of three (and sell losers, ride your winners . . . .). This is because [most] companies produce income and grow. When you trade currency or other commodities, you have to be right more than half the time just to break even.

So you are much more likely to lose money currency trading than trading stocks, making it relatively higher risk.

High risk goes with high potential reward.
wondersz1:

June 21, 2010 at 3:25 am

Currency exchange rates are dependent on a great number of factors – politics (wars, tensions, international relationships), general state of the economy, performance of the major industries. Currency exchange rates are therefore affected by lots of factors, their advantage is that they still flactuate less than, say, market price of companys’ stock.
Mechard T:

June 21, 2010 at 4:19 am

Currecy is a product like any other products, it is not that much true that currency trading is of high risk. What makes me think so is the nature of the business it self. Currency is most fast convertible than any other product. The most risk business “air line”
Alfred Chew:

June 21, 2010 at 4:53 am

There are simply too many factors that determine the value of a currency.
You would have to consider the country’s reserves, balance sheet, GNP, Political situation and etc….
Then you need to consider the same to the country for the exchange.

The only indicator that is useful is the exchange charts since the fundamental is too much to understand.

I would not recommend a new trader to go for currency trading for a start.
anonymous:

June 21, 2010 at 5:10 am

high volatility
getitandgo720:

June 21, 2010 at 5:44 am

There are some good points listed above, but the reason currency trading is high risk is because of the leverage allowed. You can trade currency futures which offer approximately 20:1 leverage, which means you can trade $100k worth of foreign currency for $5k. Also available is the forex markets which offer something like 100:1 leverage. At 100:1 leverage, a 1% move will wipe out your account. Alot of people don’t understand this, which is why they associate these markets with high risk.

Currency markets also tend to be very volatile. You can see pretty big swings in rather short periods.
MP:

June 21, 2010 at 6:33 am

To give credit to “getitand’s” excellent answer, the greatest killer of any newbs account is using TOO MUCH MARGIN (leverage) and finding themselves partially or totally wiped out when a currency “spikes” either overnight or on news or simple manipulation, be it positive or negative.

Now, IF YOU STUDY, LEARN AND ARE PATIENT (and use correct money management techniques — use very little to no leverage till youve built your account and know how to trade), you will find you can learn to spot the trends, which are so important in currency trading.

It is impossible to go thru everything here, but in MY reality, having come from years of equity trading, Forex is reasonably simple because of its absolute desire to always maintain its trend line !

This simply means, once you catch on to whats happening, to the multiple daily (24 hr period) reversals, to the twice daily trend reversals and all the other little things that forex does, you can actually make a decent living by following the bouncing ball !

ITS NOT SIMPLE, but given a year or so learning (you think forex trading is different than learning any other job ?) you will learn to survive, and once you survive, you can win !

IT AINT BRAIN SURGERY !

enjoy and trade well

mp