The main reason people fear the forex market
Why do some people think that the forex market is not the ideal place to make profits?
The currency market is that the largest and most liquid financial market of all. However, only a really small percentage of traders achieve success during this exciting world. Although some blame an absence of self-discipline and poor trading strategy for the overwhelming majority of losses, there are some factors inherent within the forex market that make it a awfully dangerous place. within the following lines, we’ll take a glance at these factors that don’t make the forex market a perfect place for creating profits.
Difficult to predict
Economic data and geopolitical events affect the worth of currencies either positively or negatively. However, explaining these fundamental factors isn’t a simple task. Some positive economic reports may weaken the currency, not strengthen it needless to say, because of its association with variety of other factors. as an example, there’s an inverse relationship between the japanese yen and therefore the Nikkei index. When the Nikkei rises, the worth of the yen usually falls, whether or not economic indicators are better than analysts’ expectations. Therefore, if the trader opens an extended position supported positive economic data, he will face a loss just in case of placing stop orders at close levels.
One piece of evidence in support of this argument is that the dramatic events within the lifetime of John Maynard Keynes, one in all the foremost important and greatest economists in human history. Keynes was answerable for founding the planet Bank and also the International fund, and he presented economics with one among his most vital theories ever, which shattered the parable that the free market would automatically achieve economic condition. With the tip of war I, Keynes decided to enter the currency trading market and even collected money from his friends for this purpose. Of course, someone with such a strong mind would are able to achieve great success as his wealth of data would have helped him predict the foremost trends of currencies. However, against all expectations, Keynes lost all his money. Many give this instance to point out how difficult it’s to figure within the forex market even for an economic mentality within the stature of John Keynes.
Lack of consistent expectations
It often happens that the trader fails to read matters within the currency markets correctly, which ultimately leads him to wrong conclusions. for instance, a currency may bear a state of weakness, but it’s really just a consolidation phase before starting a brand new uptrend supported by some macroeconomic factors. the foremost prominent example of this is often what happened to the US dollar after the worldwide financial crisis in 2008. The greenback during this era performed best among the key currencies once the spark of the financial crisis broke out. The prevailing expectation was that the US dollar would incur heavy losses, but the other happened thanks to the decrease within the dollar’s available liquidity to liquidate daily operations within the economic system. The central bank then had to extend the cash supply to fulfill the liquidity shortage. Ironically, the financial crisis itself started within the us after the bankruptcy of Lehman Brothers, which led many traders, and even analysts, to expect the devaluation of the greenback. Unfortunately, only a limited number of traders who had knowledge of the workings of the industry were ready to draw this conclusion, which helped them achieve some profits or a minimum of protect themselves from losses incurred by others. Of course, not all individual traders, or perhaps most of them, have access to such important information.
China’s rise as an economic superpower
The inclusion of the Chinese yuan among the reserve currencies of the International money has contributed to the complexity of the forex market. it’s very difficult to grasp or maybe guess what’s happening in China, which is why many fear that any unexpected crisis within the property, stock or corporate credit markets will cause serious repercussions on global markets, and after all, individual traders don’t have sufficient tools to accommodate These challenges.
High potential for losing all of your capital
It is common to search out some forex brokers offering their clients leverage of up to 1:500 or more. that’s why a trader who doesn’t have the flexibility to manage risk will lose his capital sooner instead of later thanks to failure to use this high level of leverage. Forex brokers offer high levels of leverage so as to extend trading volumes, but unfortunately it indirectly encourages novice traders to lose their money within a brief period of your time. In other words, the advertising of low margin requirements by forex brokers increases the chances of individual traders experiencing huge losses.
currency trading addiction
The forex market operates 24 hours daily, 5 days per week, which makes trading opportunities available at any time. This uninterrupted flow of economic indicators and geopolitical news from round the world naturally creates trends for a minimum of variety of currency pairs at any given time. Together, these factors lead the trader to be the trap of over-trading by repeatedly buying and selling and keeping many open positions most of the time. Of course, increasing the frequency of trading in an unreasonable manner ends up in a rise within the number of failed trades, a situation that pushes the trader to enter into a positive feedback of retaliatory trading to catch up on losses, and consequently falling into the trap of addiction to trading in a very way which will even negatively affect his health.
The forex market is subject to sharp fluctuations most of the time. Unlike the stock exchange, which isn’t usually full of political events that occur in distant countries, the currency markets are laid low with all the news that comes out and so a increase within the level of volatility may occur at any time. this needs the trader to follow the charts and political news, in addition on know the upcoming news release dates to anticipate them. However, some traders often rush to enter or exit their trades before planned, which frequently ends up in unnecessary losses. Inexperienced traders easily fall into the emotional impact of those stresses and emotions, which frequently damage their health and private life.
An industry stuffed with scams
Choosing an honest broker within the currency market isn’t a straightforward task, it requires a good deal of skill. The exchange market operates outside the confines of official stock exchanges, which is why it’s a hotbed of scammers with the convenience of putting in brokerage firms on remote islands and tempting newcomers to affix them. There are countless scam stories of novice traders who fall victim to such fraudulent companies and in most cases end in the loss of all their investment.
In most cases, these victims don’t have enough time to find out trading and explore for investment opportunities, and for this they fall prey to scammers who claim to be experts within the trading world and seek to influence others to take a position their money with them and achieve great returns. Soon, the fraudster disappears, leaving his victims confined to the loss of their investments.
The lack of confidence within the new forex trader also leads him to hunt support from others who are tried and true. Scammers cash in of now by fitting sites that supply recommendation services for a particular fee. this sort of site also resorts to displaying false records of past performance that include impressive results that are impossible to attain actually. The gullible traders who are drawn to such services find yourself losing the money they bought signing up for the signals services also as losing their entire capital as a results of going in losing trades. this is often because beginners find themselves obliged to follow these recommendations without even having the power to know the rationale for the losses they’re incurring. These exciting stories of fraud and scams always instill a way of fear within the hearts of the forex market.