Common Financial Risks of Forex Trading
Forex trading, abbreviated from foreign exchange, is essentially a global market in which the product being bought and sold is foreign currency. A buyer in the Forex market may invest in, say, one thousand Euros, and this costs him, say, one thousand five hundred US Dollars. Perhaps a year or so later, global economies have shifted, the Euro has become more popular, and the one thousand Euros that this hungry investor purchased are now worth two thousand US Dollars. The investor can now sell his one thousand Euros for two thousand US Dollars, making a five hundred dollar gain. Of course, this is a radical simplification of this complex market system, and the figures may not reflect current exchange rates. But at its core, this is what Forex traders do: they trade in foreign currencies to try to gain capital. As with all trading scenarios, there is some risk involved. A risk-free market is something that can never exist, because all investments carry some chance of loss. There is a growing trend for Forex trading to be marketed to the individual as an easy way of adding to one's investment portfolio. Often, Forex promoters will try to sell state of the art software that helps the user manage accounts in foreign currencies at home in his or her spare time. The Forex market is practically turning into another Gold Rush, but there are many things about the market that the promoters may forget to tell you. Forex trading is much riskier than many people think. Sure, plenty of people are making money in this market, but every dollar gained is a dollar lost somewhere else. To oversimplify once again, somebody loses in every transaction. It can be very easy to lose a large investment in Forex, and if you're getting into something like margin trading, or leveraging, your losses could end up exceeding the amount of your original investment by several times. As gamblers say, you shouldn't bet more than you can afford to lose. Additionally, the investment software being peddled is usually supposed to statistically track and predict trends in the market, guiding you toward the most promising investment. This is seemingly meant to act as a substitute for finance experience and professional advice. Software like those made by?Sunbird currency trading?may accurately track past market trends, but it is important to remember that these predictions are guidelines based on the past. The market could go any direction, so take care. By technicality, some institutions such as?Fatwa Forex Halal?waive many usual trading fees, so this may also be a valid option. Forex trading can be very lucrative, but very risky as well, so it is extremely important to be aware of the potential dangers as well as potential benefits. Avoid margin trading as a beginner, do careful research on trading software, and be mindful so as not to get in over your head. Only after knowing the risks as well as the rewards can you be sure if Forex trading is the way to go for you. Carol Montrose is a contributing writer for Michael Parnes, the CEO of Old Park Lane Capital, the premier brokerage for natural resource focused companies.
Source: http://www.afrugallife.org/2012/08/common-financial-risks-of-forex-trading.html
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