Capital forex market is a relatively new and unpredictable area of the forex market. More money can be earned in this market, but can just anyone go into capital forex trading? For one thing, the very fact that the capital forex market can yield higher earnings also means that it can lead to bigger losses. The force behind this market is speculation, which some people compare to gambling. So this is definitely not for the faint-of-heart, and neither is it suitable for those who do not have risk capitals. Risk capital is money that a person can afford to lose without gravely affecting his present economic situation.
Capital forex market is a relatively new and unpredictable area of the forex market. More money can be earned in this market, but can just anyone go into capital forex trading?
For one thing, the very fact that the capital forex market can yield higher earnings also means that it can lead to bigger losses. The force behind this market is speculation, which some people compare to gambling. So this is definitely not for the faint-of-heart, and neither is it suitable for those who do not have risk capitals. Risk capital is money that a person can afford to lose without gravely affecting his present economic situation.
The capital forex market has a lot to do with proper risk management. If high earnings are the number one reason for people to want to trade in this particular market, risk is also the number one reason why other people stay away from it. Unless one can control the future, no amount of forex market technical know-how can ensure that the transactions that made money this morning will still make money this afternoon. Such is the volatility and unpredictability of the forex market.
Another risk one might come across in the forex market is forex fraud or scams. It may be fraud made by the broker or by the dealer. It is best to choose and deal with only reputable individuals and do background checks on persons one would be transacting with. Some brokers might ask for funds with promises of huge profits only to be left with nothing in the end. There are also dealers who do not fulfill their part of the deal. Often it is a good security measure to focus on the dealer than on the deal.
There are also transactions that pose higher risks than others. There are different types of transactions in the forex market that one should be familiar with. There is the spot transaction which is more like a cash transaction wherein the actual forex transaction is completed within one to two days. The forward currency transaction comprises of two parties agreeing on an exchange rate but the actual buying and selling of the currencies will take place on an agreed upon date in the future. The option transaction is one in which the person agrees with another party on an exchange rate and the future date of payment, but may have the option or the right to fulfill the transaction on any date before. Lastly, there is the limit order transaction, so-called because the transaction is limited or set to the rate a person is willing to sell his currency.
The other risk present in this market is country risk. This can be significant for those who choose to trade using cross-currency pairs that do not include the major pairs or countries.
With the many factors involved, the capital forex market is not for everyone because just as there are people who believe that risks are a necessary part of success, there too are others who believe that risks have no place in their lives.
