Forex traders must keep alert if they are to profit from the act of buying and selling currencies on the foreign exchange market, but trading is not easy. There is volatility in the markets every hour of every week day but that does mean there are always opportunities to make money.
However, volatility does not always go hand in hand with opportunity. As we shall see, there are many hazards on the road to successful trading.
Guest post by FXTM
News events
News items such as economic reports, central bank announcements or unexpected events can create significant volatility in markets and create opportunities that some traders thrive on. But they can also lead to markets spiking up or down, taking out stops in a short space of time.
News events can pose several difficulties. For one, news events such as economic reports are not always available to retail traders like they are to professionals. Professionals have quicker news feeds and thus see the numbers much quicker which means they can react more quickly.
Secondly, forex spreads often widen around news releases as brokers expect the increase in volatility ahead of time. Brokers will want to cover their backs but doing so makes it much more expensive to trade when a news release is near.
Currency interventions
While some traders may thrive on the volatility around news releases there are times that even they get caught out by unexpected events. Government interventions in the currency space can cause monumental shifts in currency markets so even experienced traders can get caught massively wrong at times. These events can be hard to predict. If you are on the wrong side there is often little you can do other than have a sound money management system in place.
Trading psychology
The biggest hazards in the forex markets are undoubtedly the forex traders themselves.
In order to trade profitably it is essential to have a clear mindset and there are countless ways a trader can lose their focus. Chasing losses, gambling, overtrading, indecision and self-sabotage are battles that every trader must face every day when they attempt to play the markets.
System faults
If you have a forex trading system, one that is automated or written down in code, then you deserve some credit for getting that far. However, there are several hazards involved in creating trading systems that could render it useless. If the system has a bug you’ll likely give more money back to the market than if you just traded manually, so it is extremely important to stress test any system that you may have for faults before you begin live trading.
Further reading: 6 Steps to creating a robust forex system
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