"The Foreign Exchange Market Is All About Possibilities" - Is it true or not?

by MD Tanjib Forex Trading Author

Well, to be said, it's definitely true!

People from across the globe are trading in Forex. If its daily turnover 6.5 trillion dollars, then you can imagine how large it is?

Extremely expanded, right?

Forex is all about risk analysis and probability. There is no single method or style that will generate profits all the time. It is a matter of great regret that still in 2021 many people think that Forex trading will provide you with only profits. That's not even half of the truth.

And... don't even try to deny it!

You gotta remember the primary rule of the Foreign exchange market and which is "Everything is a possibility". Not even the BEST traders can guarantee a consistent profit. But yes, they don't give up whether they lose 100 or 1000 bucks. As a result, they become adaptive to critical circumstances and this is called positioning.

So, you should try to live by that!

Let's know more about Forex Risks...

Well, in forex trading, there are huge risks. Here are some major risk in the below lists--

Exchange Rate Risk

Exchange rate risk is the risk caused by changes in the value of the currency. It is based on the effect of continuous and usually volatile shifts in the worldwide supply and demand balance. For the period the trader’s position is outstanding, the position is subject to all price changes. This risk can be quite substantial and is based on the market's perception of which way the currencies will move based on all possible factors that happen (or could happen) at any given time, anywhere in the world.

Interest Rate Risk

Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, along with forwarding amount mismatches and maturity gaps among transactions in the foreign exchange book.

Credit Risk

Credit risk refers to the possibility that an outstanding currency position may not be repaid as agreed, due to voluntary or involuntary action by a counterparty. Credit risk is usually something that is a concern of corporations and banks.

Marginal or Leverage Risk

Low margin deposits or trade collateral are normally required in Foreign exchanges. These margin policies permit a high degree of leverage. Accordingly, a relatively small price movement in a contract may result in immediate and substantial losses in excess of the amount invested.

Transactional Risk

Errors in the communication, handling, and confirmation of a trader's orders (sometimes referred to as "out trades") may result in unforeseen losses. Often, even where an out trade is substantially the fault of the dealing counter-party institution, the trader/customer's recourse may be limited in seeking compensation for resulting losses in the account.

Risk of Ruin

Even where a trader/customer's medium to the longer-term view of the market may be ultimately correct, the trader may not be able to financially bear short-term unrealized losses and may close out a position at a loss simply because he or she is unable to meet a margin call or otherwise sustain such positions.

So, now here are how you manage your risks--

1. Understand the forex market

2. Get a grasp on leverage

3. Build a good trading plan.

4. Set a risk-reward ratio.

5. Use stops and limits.

6. Manage your emotions.

7. Keep an eye on news and events.

8. Start with a demo account.

Your most possible FAQ to this article is "What is the use of risks in this article where you title with the market is all about possibilities?"

Ans: If the market is unpredictable, there are lots of risks that you can't define. That's why I am showing the risks and its solution.

The Bottom Line

All in all, I just want to mention that forex trading is unpredictable but with proper forex market analysis, market research, news trading, and making useful strategies, you can do things predictable. Just you have to make yourself prepared for that.