Forex Trading and its Business Risks
By: Terry Allen
All new business ventures entail some degree of risk making the possibilities of serious fiscal losses a major problem. These risks can emulate from the external and internal circumstances of the company and are defined as any issue, factor or situation that can produce a negative impact on its operations. As a priority, you must focus always on keeping your risk elements under control in order to preserve your bank balance.
In particular, Forex trading is considered very risky compared to other forms of investments. The main reasons for this are that Forex trading is very volatile and its traders have access to very high leverage facilities. When these two features are combined in an undisciplined way, the resultant concoction is very lethal and capable of causing you severe financial losses. Tools such as Forex money management strategies can lessen the blow, but do not eliminate the problem completely. As such, expert consensus always recommends that you only trade with money that you can afford to lose when trading the Forex market.
One of the first decisions that you will have to make when you start your Forex trading career is selecting a Forex broker. When doing so, you are well-advised to investigate the credentials of all your potential candidates. You can verify a good and reliable Forex trading broker by confirming such information as are they registered on-shore and are they members of official agencies such as the Better Business Bureau, National Futures Association and Commodities Futures Trading Commission. Are they single companies or part of larger organizations? Also, you need to inquire if they possess a world-class proprietary price feed that is capable of providing you with very competitive and steady Forex spreads.
Once you have chosen a FX broker and made a deposit, you will then have access to leverage that can be in the order of 400:1 or more. This facility will allow you to open positions of considerable value with just small deposits. For example, if your leverage is 400:1, you could then enter a Forex trade worth $200,000 with a deposit of only $500.
However, you need to understand that the risks associated with such actions are very large and can desecrate your Forex account balance very quickly if you do not take sufficient care. For instance, assume you decide to enter each trade by risking 10% of your full Forex trading account. If you were unfortunate to experience ten consecutive losses, you may be surprised to discover that you will be left with only about one third of your original balance.
Such actions will place you under considerable stress and is why most Forex money management strategies recommend risking just 2% or less of your balance per trade. By doing so, you will definitely increase your prospects of Forex trading survival.