Every investment has its own advantages and disadvantages. And this applies to foreign exchange market (Forex) as well.

Forex is a short form of Foreign Exchange Market facilitates the purchase and sale of different currencies around the world. And this market is very volatile. And it has its own pros and cons.

So before diving in investing in Forex, you should know the basics and also know how investors make losses. Basically the rule of knowing as much as possible about the investment instrument you are putting your hard earned money in, is extremely important and highly recommended.

So here are the key risks in Forex trading:

Leverage

The main risk in Forex lies in leverage. Leverage multiplies your profits, but if the market goes in the opposite direction (which will eventually happen at some point or the other), your losses will multiply. In fact, many Forex investors lose their money because of leveraging, which is kind of a loan offered by broker. This is the reason why Forex is very risky.

Not knowing that Forex is a NOT regulated market

Forex is a globally operated market and the trading happens 24 hours a day, all over the world. However there is no regulating authority. It is not supervised by SEC in the United States or Financial Conduct Authority (FCA) in United Kingdom, nor by any regulator in the world. Which basically means that there is no one to protect your money. That lack of supervision has resulted in various frauds. So look for a broker who is recognized, keeps you informed and offers secured trading environment.

High Volatility

When you are start investing in Forex, often times currencies will become highly volatile. Investing money during such time can turn out to be disaster. So you need to know the characteristics of the currency pair you are going to trade to avoid risks.

Technical risk (risk, associated with technical products)

There are some risks that may occur at the time of trade such as: hardware and software failure, loss of internet connection, problems with communication systems, incorrect configuration of the trading platform, etc. This may actually result in serious problem and eventually a loss may occur.

Unforeseen circumstances

Broker is not responsible for losses or incomplete receipt of funds obtained, or losses arising due to natural disasters, extraordinary weather conditions, threat of war, act of terrorism, illegal actions by third parties, mass unrest, etc. Such events play a very important role especially during Forex. This is because of the currency impact of the country in question.

Myths about Forex

Forex advertisements across the globe are half truth and therefore, misleading. Here are some myths surrounding this enticing investment product:

Forex trades all day, so you can earn money in your free time.

Forex does allow you to trade at any time, but that doesn’t mean you can make a profit at that precise moment. To win in Forex, you have to look closely at the chart to find the right time and price for entry, and that’s not always going to be in your spare time. If you want to make money in Forex, you need to devote time, not just free time.

Forex is the simplest, most effective and fastest way to improve income.

If it were that simple, everyone would be making money with Forex. Isn’t it? It is not that simple like products like your interest on savings account.

Remember that in Forex market, in order for one to win, another person has to lose. And usually losses are typically made by inexperienced traders looking for quick and easy profits. It requires mastering techniques, and it takes time, practice, falling and getting up.

With time, practice and experience; Forex can become a excellent source of income.

Only Intellectual Intelligence is Required

Of course, intelligence is a key in any investment product because intellectual intelligence coupled with analytical and observational skills will help you find patterns to buy and sell in a timely manner and generate profits.

But another type of intelligence is also important: Emotional intelligence.

Fear of losing and ambition can play against you. You must have control over your feelings and patience to wait for the right moment. If you don’t have emotional intelligence, then you should stay away from Forex.