Ever heard of a millionaire Forex Trader? What about someone who lost so much of their wealth through Forex Trading? Forex trading is a popular high-risk investment opportunity. There are myths and a lot of misinformation about forex trading. This article seeks to demystify this.

What is Forex Trading

Forex trading is one of the highest-value trades in the world. Forex trading allows for international trade as it enables traders to access goods in a currency apart from their local currency. If you have ever travelled outside of your country or have imported an item, you must have been involved in some form of forex trading.

CFD Forex Trading

However, the common forex trading that is popularly traded as an investment opportunity is called CFD (Contract for Difference) Trading.

CFD Forex trading is a type of investment that allows traders to speculate on the price movements of foreign currencies without dealing with the actual currencies. This trading is popular among high-risk investors as it offers high leverage, which means that traders can control large positions with a relatively small amount of capital. In other words, when you invest USD 1000, you can receive 100X leverage which enables you to trade as if you had USD 100,000.

Risks Associated with CFD Forex Trading

Leverage Risk - Leverage magnifies the small movements in prices so that you make or lose much more than you could have if you were not using leverage. This substantially increases the risk associated with this trade.

Volatility - Another risk associated with CFD Forex trading is that the foreign exchange market is highly volatile and can be affected by a variety of political, economic, and social factors, making it difficult to predict price movements.

Unregulated - CFD Forex trading is also not regulated in the same way as other financial instruments. This means that traders may not have the same level of protection against fraud or other illegal activities. Additionally, some CFD Forex brokers may not be trustworthy and may engage in unethical practices such as stop loss hunting, which can further increase the risk for traders. This has happened severally in the past and investors have lost quite a colossal amount of their money.

Technical - Furthermore, CFD Forex trading requires a good understanding of the market and the ability to make quick decisions based on market conditions. For novice traders, this can be a difficult task and may lead to significant losses.

CFD Forex trading is a high-risk, high-reward activity and may favour high-risk traders who are experienced and have a good understanding of the risks associated. However, for most investors, it can be a risky endeavour that has led to significant losses. Even for experienced traders, CFD trading still results in major losses. Therefore, whether you are trading personally or investing through a “guru”, only invest the money that you are willing to lose - in case the market goes against you.