Just like many other forms of trading forex trading carries risks and if you want to learn to trade forex you need to be aware of these before dipping your toe into the foreign exchange pond. Five of the most common risks are:
1. Forex scams. Forex scams (principally opening a trading account with a con artist rather than a reputable broker) are far less common than they used to be but they do still exist.
2. Exchange Rates. The foreign exchange market can be extremely volatile with currencies moving significantly against each other in very short periods of time creating both substantial gains and substantial losses.
3. Credit Risk. Because every transaction involves both a seller and a buyer there is a possibility that one party will fail to honor his or her commitment once a deal is closed.
4. Interest Rates. Traders have to look out for discrepancies between the underlying interest rates in the countries whose currencies are being traded as any discrepancy can create a difference between the predicted profit and the profit that is actually received.
5. Country Risk. Sometimes governments will intervene in the foreign currency exchange markets to limit the flow of its country’s currency and, while it is unlikely that this will occur in the case of major world currencies, it can occur in the case of minor and less often traded currencies.