There is much hype that surrounds online forex trading. No doubt, it is one of the simplest trading mechanism that is easiest to learn, but it is also considered to be the most difficult to make money from.
Many people gets lured into trading foreign currencies online by the promise of huge profit potential and the benefits of leveraged trading. A number of these people have tried various ways to make money online and have been frustrated. Trading currencies online serves as their saving grace to try making real money. Unfortunately, they come ill-prepared and with hardly any knowledge of what they are going into.
They embrace foreign currency trading as an item of novelty and are mesmerized by the simplicity of the trading platforms just as a kid develop a fondness for a new toy. The joy and the striking features of their new found love makes them forget that there is more to online forex trading than pointing and clicking the mouse.
Start-up traders who neither have the patience to learn the intricacies of online forex trading nor the temerity to cull the required trading discipline and nurture the correct trading habits often end up treating forex trading as a mere gamble. Instead of taming the risks of currency trading by equipping oneself with the appropriate knowledge and understanding of the market, they tend to choose the easy way out and rely more on their gambling instincts. They may be able to make money picking trades using their gut feel but as experience will bear us out; they are bound to lose everything in the long run. The most dangerous situation a forex trader will face are those circumstances that he made for himself.
Failing to incorporate prudent money management strategies is also one of the perils of forex trading. Upstart forex traders often do not see the importance of incorporating protective stops into each trade. As a result, they incur losses which are more than what they could absorb or see their profits run into losses. With protective stops, losses are minimized and traders get to trade another day. With protective stops, profits are protected against trading losses.
Another peril a trader will have to face when he decides to dip his fingers on online forex trading is choosing the most ideal online forex broker to work with. Choosing the wrong broker can make a trader end up trading against his own brokers. There are still scrupulous brokers out there whose objective is to pull a fast one over you. While it is perfectly legal for a broker to match your trade, especially if the broker happens to be a market maker or an ECN broker, it will still have some conflicts of interest. The broker may resort to some dirty tricks like slippage to try to squeeze more money out of you and prevent you from getting out of your set stops. As a result, you always end up losing more than what you planned for.
Although, there are CFTC regulations to cover you from such risks, these regulatory measures may be useless if you happen to deal with an overseas broker who is not registered with the CFTC and is therefore not under its regulatory jurisdiction.
In summary, aside from the inherent risks entailed with online forex trading, there are other perils that a traders needs to be aware of.