What is Risk in Forex?
Anya Mei
18 Nov 2022
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Risk is the probability of losing part or all of your investment. In forex trading, you can risk losing money if the price goes against your trade and you exit from the market in a losing position.
Risk is the potential failure of a trading position to deliver the expected outcome. It usually ends up with traders losing money instead of gaining returns. In forex, there are 3 types of risks based on the reasons and where they come from:
- The market risk: It comes from the market condition and everything that can influence the market sentiment. It can be economic data releases, breaking news that can stir up volatility in the market, interventions from central banks, manipulations from big players, and even anomalies that can happen from time to time. This type of risk is out of the trader's control.
- The investment risk: It is related to how a trader manages their entry and exit positions. To manage this risk, traders need to be able to spot the most ideal opportunities to open and close positions. This risk also depends on how a trader sets up their risk tolerance and uses that standard to limit their loss per trade.
- The trading risk: It deals with the technicalities of execution in trading such as slippage, poor execution, requote, and so on.