Although the foreign exchange market has its share of viable profits, there are still a lot of risks involved. Not only are there inherent risks in the system itself and the fluctuation of markets. But there are also specific things you need to watch out for that can throw a wrench in whatever strategy you have in place. For those seeking out fair forex, make sure you keep an eye out for these unwanted factors that you should avoid in FX trading.
Market Makers
You need to know the difference between a broker and a market maker because even though both parties handle the financial aspects of trading and connect networks, they do not operate in the same way. For instance, one is not quite as beneficial as the other. A reliable broker will be pro-client and always look into the best deal and strategy that works for you, whereas market makers actively quote two-sided markets. That means that if the tide turns in another’s favor, you can just as be dropped quickly. Hence, the term “true ECN” has been coined in FX trading circles to denote the difference.
Market makers do provide a direct line. Yet, they can actively work against you since their main goal is not necessarily to serve you but assess bids and buy and sell securities for their own account.
Too Fast Entries
Market entries always carry a risk-benefit analysis, and making a strategic risk with your entry can yield big profits in return over time. However, it’s best to avoid making a habit of fast entries with fluctuating markets as that can lead to a loss on your part. It’s also more likely to expose you to unnecessary pitfalls that come from trading or investing without assessing your options and monitoring the price points that you’re getting into. While it’s essential to be able to adapt at a quick pace with the market, there is still such a thing is going in too hot.
No Stop-Loss Order
In forex trading, it’s crucial to find yourself a trustworthy broker who will keep your investments secure and provide you with a good pool for liquidation. On top of that, it would be wise to discuss having a stop-loss order in place before you start delving into things. Without it, you are multiplying your risk of loss and blocking out a suitable exit route for yourself.
This order can also lessen your stress of having to monitor the prices every day because it will ensure that once certain security decreases and a price point is hit, you can automatically sell it off and prevent losses. A good broker will offer you this, and there’s not much reason to skip it since it doesn’t cost extra to implement.
The dangers mentioned should be avoided because mistakes can be costly in this trade. Data shows that around 70% of traders end up quitting because of the failures they’ve sustained. Before entering this market, take some time to know what to avoid and what you need to secure your goal.
