Risk in Forex
Posted on October 21, 2009
Filed Under Forex Brokers, Trading Tips
by John Robinson
Risk in Forex: It’s not just about you and your choices
Online forex trading is of course a risky business, but the risk is not just born of you and your trading decisions. There are also other risks related to the market itself and the broker which are sometimes neglected during discussions about the nature of trading as a risk-taking exercise. However, it is important to keep these issues in mind in order to make sure that when we do meet adverse consequences we do not panic and suddenly decide to give up as our expectations crumble under the surprising realities of trading.
- Fraud: Trading forex involves interaction with a broker. To trade, you have to commit some of your funds to the firm, a fact that creates an environment suitable to fraud if precautions aren’t taken. The most basic and common way to deal with fraud is ensuring that your broker is regulated, but even that may not protect you against chance outcomes where the eyes of the regulators are blinded by this or that factor. In order to ensure against such a disappointing, and potentially disastrous scenario as fraud, you can choose to diversify your trading activity across multiple brokers, committing a limited amount to each one of them. By employing different strategies at each one you can diversify your strategies as well as your broker, which can be a great way of protecting yourself from losses.
- Technical problems: Technical problems, like software crashes, connection problems, and other issue like slippage or un-executed stop-loss orders may make trading a much harder task than it would otherwise be with a more competent broker with a better technical capability. Technical problems are always a serious concern in trading, so make sure that you test your firm thoroughly with a mini-account before beginning to trade.
- Embezzlement: Even if the owners and managers of a firm are honest, there are cases where the employees act independently and embezzle client funds. Some top forex brokers take insurance against this possibility, while others enlist the services of external auditors against embezzlement. Your best course, as always, is diversifying.
The best forex brokers in the world will not take away the responsibility of analyzing and taking precautions against such problems. Although by no means a common occurrence, fraud and embezzlement are problems that cannot be ignored, and as such, the trader must do all he can to ensure against the worst keeping in mind that unpleasant situations do arise. The key word is “diversify”. Diversify your trading style, diversify your portfolio, diversify your brokers, and you’ll be as safe against shocks as it is humanly possible.
Tagged With articles, brokers, forex, FX, trading advice
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