Dummies Guide to Forex Trading: The Biggest Market on earth
When referring to markets that are very risky and very unstable, the first market that usually comes to mind, at least in the minds of most, is forex. Surely, when trading with currencies you are likely to find yourself in the middle of a highly volatile market( given that a currency’s price is impacted by many elements, like, though not limited by, natural disasters, political changes, etc. ).
There is no secret that the volatility and instability of the Forex market is exactly what allows fora Forex trader to generate a profit, but this also creates a much more risky market. As you surely know, higher risks can quickly become increased losing trades. When engaging in forex, a Trader will attempt to mitigate risks, and typically, a knowledgeable and skilled trader will succeed in diminishing risk. Nonetheless, there may be instances that no matter what a Forex trader does; the individual will end up having to put up with losses. Sometimes this is a consequence of mistakes made when making decisions, but other times this is a matter of just chance (and misfortunes at that ).
Considering the fact that trades are seldom completed immediately, there's a time window( between the time when you send the order and the time when it's completed) where the currency’s price can suddenly change; these unexpected changes can generate profits, but they can also generate losses for any Trader. As an example, just imagine that you have placed a stop- loss order so as to mitigate losses in a forex trade. Now, it comes the time when the currency you are trading starts to plummet; the currency reaches the stop- loss level and the system immediately issues an order to stop and exit the trade. However, through the few seconds that the order takes to be processed, the currency’s value continues to fall; by the time the order is finally processed your losses have increased because of these couple of seconds. This issue that occurs provided the impossibility of orders to be processed instantly is slippage, and it should be clear by now that it could be potentially devastating for any Forex trader. Yes, it's true that slippage could also work out to a Forex trader’s advantage, but for the most part it is a problem that has negative effects.
In the Forex trading market slippage is oftena risk that traders will have to put up with, especially at times when the market is volatile or unstable. Also, it's very important that you understand that a Fx broker will usually attempt to use slippage to his or her own advantage, even if this means generating losses for you. Don't Forget, that you're trading in a Forex broker’s platform system, so they may very well work the market’s volatility for their advantage and use slippage as a way of making profits at your expense.
Despite of this, traders generally accept the occurrence of slippage, and in most cases, they are willing to risk it. Notwithstanding the potential risk of slippage, the potential profits are much too great to be ignored, therefore traders will continue on trading, even at times when volatility is high.
