We have created a 'contents' section so you can use it to browse to section of the information regarding forex trading. This guide is broken down in 6 different sections for beginner traders in Nigeria, and we will continue to update it with new information in the future.

Below is a quick summary of the Forex trading brokerages that you can choose from:

Broker Name Regulation Max. Leverage Min. Deposit Platform(s) Website
$5 or equivalent in Naira
Visit HF Markets Read HF Markets Review
HFM has low spreads for most curreny pairs. Their Swap fees is moderate
1:Unlimited (on Forex). High Risk.
$1 (₦1,000)
MT4, MT5
Visit Exness
Exness is a Tier-1 regulated forex broker. The Pro accounts have lowest spreads from 0.6 pips for EUR/USD.

Forex trading is the buying & selling of currencies with an aim to make a profit. Traders can place their trades in the forex market, which is an over-the-counter market that allows investors to trade currencies. This is a platform for investors, institutions, banks, and retail traders.

Foreign Exchange Market is the largest trading markets and has an average turnover of US$6.5 trillion on a daily basis around the world. This is larger than all the stock markets in the world combined together. Trading activities are conducted through the “Interbank Market” which allows you to execute trades 24 hours in a day, for 5 days a week from Monday through Friday.

What is Forex Trading?

Real Life example of Forex Trading

Have you traveled overseas? If you have then the chances are that you have already traded currencies before. This is because you need to acquire the currency of the country you are visiting by exchange the currency of your home country.

Let’s say that you change ₦410,000 to US Dollars for travelling, and you get 1000 USD from the exchanger. In this example you are physically buying USD by exchanging your Nairas. When you change your Naira into a different currency to spend money on your trip, you are actually making a forex transaction.

Real Life example of Forex Trading

The rate that you get from your exchanger is decided on the basis of the real time exchange rates plus the profit margin of the money changer. If the current market rate is NGN410 per USD, then you would probably get around ₦420 rate from your changer. The difference of ₦10 (420 – 410) for each USD is your changer’s profit margin.

In theory, this is what online forex trading on the internet is all about, but still a bit more than exchanging currencies through a Money Changer.

All transactions in the forex market are based on the purchase of one currency for the sale of another currency. So you are trading or exchanging the 2 currencies simultaneously for one another, hence known as ‘currency pairs’.

For example: EUR/USD (Euro & the US Dollar), NGN/USD (Nigerian Nairas & the US Dollar) etc.

There are 100s of currency pairs, including the so called Majors, minors & exotic. It is really important to understand what currency pairs, and how they work before you can start trading Forex.

In this chapter, you will learn everything you need to know about Currency pairs. Let's start!

Currency Pairs

Types of Currency Pairs

Currency pairs are mainly classified into 3 types:

1) Major Currency pairs: These are the currency pairs that include US Dollar as one of currency in the pair. Almost 85% of the global trading volume is traded in the majors.

Majors include 7 currency pairs: EUR/USD (Euro/US Dollar), GBP/USD (Pound/US Dollar), USD/JPY (US DOllar/Japanese Yen), AUD/USD (Australian Dollar/US Dollar), USD/CHF (US Dollar/Swiss Franc), NZD/USD (New Zealand Dollar/ US Dollar) and USD/CAD (US Dollar/Canadian Dollar).

Since most of the trading is done in majors, so they are highly liquid & it is easier to get in & out of trades. The opportunities to make profits are higher.

Majors, minors & exotic Currency pairs

2) Minor Currency Pairs: Minors, also called the cross curreny pairs, contain all the currencies in the major pairs except for US dollar. These include EUR (Euro), GBP (Pound), JPY (Japanese Yen) etc.

Examples: EUR/GBP, EUR/JPY, GBP/JPY etc. As you may have noticed that these are the crosses of all the major currencies excluding US Dollar.

The liquidity & volume are lower than majors, so trading opportunities may be lower than with majors. The volatility also can be higher compared to majors.

3) Exotic Currency Pairs: Exotic Currency Pairs are made from one of the currency from major pairs and other one from the emerging economies like: Brazil, South Africa, Mexico, Russia etc. Examples of such pairs include: USD/BRL (United States Dollar/Brazilian Real), USD/HKD (United States Dollar/Hong Kong Dollar), USD/ZAR (US Dollar/South African Rand), USD/RUB (US Dollar/Russian Ruble) etc.

Exotic Pairs usually don't have high liquidity & trading volume but they have high volatility plus they have high spreads as compared to Major & Minor Pairs.

When choosing which currency pair to trade, you should understand the volatility & the factors which move that pair. For example, a currency pair like EUR/AUD can become very volatile during commodity bull cycles, and also volatile on the other side during global recession fears.

As a beginner Forex Trader, you need to stick to major pairs only as it offers high liquidity and predictable market movements. And your position size should be adjusted according to your account size & the volatility of the underlying pair that you are trading.

Currency Pairs Lingo

While trading forex, you would come across these common terms. We will be explaining all the important terms here.

Bid Price, Ask Price & Currency Quote Example

1) Quote by the broker: When you open a trading account with a Forex Broker, they tell you the Bid/Ask price to buy & sell the currency. It will be quoted like this example: EUR/USD 1.2812/15. This price is the quote by the broker.

2) Pip: Pip is the smallest unit in the currency quote (given by the Broker). It is the last decimal in the price. For Example: In the quote 1.2811 moves to 1.2812, the movement in the last decimal is 1 pip.

3) Bid Price: Bid price is the price at which the broker is willing to buy a currency pair from you. At this price, you can sell base currency in the pair. This price is shown on the left side in the quote ticker by the Broker.

For Example: If you see the quote as EUR/USD 1.2812/15, then 1.2812 is the quote price, and it means that you can sell 1 Euro for 1.2812 US Dollars.

4) Ask Price: Ask price is the price, at which the broker is willing to sell a currency pair to you. At this price, you can buy the base currency mentioned in the pair. It is shown on the right side of the quote ticker by the Broker.

For Example: When you see the same quote as above it had 2 values in it: EUR/USD 1.2812/15, the second value tells you about the Ask price, it means you can buy 1 EUR for 1.2815 Dollars.

5) Spread: Spread is the difference between the Bid & Ask Price quoted to you by the broker. So in above example: in which quote is EUR/USD 1.2812/15, the difference between 1.2815 minus 1.2812 i.e. 0.0003 or 3 pips, is the spread. Spread is the fees charged by forex brokers, so it is essential to choose a forex broker that has lower spread (you should also check the overall fees).

5) Lot Size or Position Sizing: Currencies are traded in the number of units that you want to buy or sell. 1000 units are called 'Micro Lot', 10,000 units are called 'Mini Lot' & 100,000 units are called Standard Lot. For example, if you are trading 20,000 units of Buy EUR/USD, you are trading 2 Mini Lots.

Generally, the broker will mention the minimum lot size for an instrument on their Intrument details page (Trading Specifications). For example, if the minimum contract size for EUR/USD is mentioned as 0.01 lots, this generally means that you can trade 1 Micro lot or 1000 units. Generally, brokers classify 1 Lot as 1 Standard lot, so any decimal is adjusted accordingly.

Margin & Leverage: Forex brokers allow traders to trade on margin. This generally is borrowed money from your broker (in easy term). If your broker offers you 1:1000 leverage for trading currencies, this means, for every $100 in your account, you can trade upto $100,000 of position size.

The margin is derived from the leverage. For example, if the leverage is 1:100, then the margin required to open a position is 1%. It is important to note that this is the margin required to open a position, but if the margin drops below a certain level, then your broker would ask you to deposit more funds to your account to keep your positions open.

But if you still don't deposit the funds, the broker would close all your active positions once the margin drops below a certain level.

So, there are major risks for traders trading forex on margin. We explain this more in the risks section at the end of this guide.

Forex trading can now be done by anyone in Nigeria, anytime, from home or anywhere through the internet. All you need to trade forex online is a laptop, good internet connection, good trading strategy tested on demo & starting capital which we recommend to be atleast ₦50,000 (although many brokers have much lower deposit requirements).

You need to signup with a Forex broker. There are many 'good' & 'scam' brokers. We will tell you exactly who to choose.

Finally, once you have a trading account we will show you the Forex Orders that you can place, and the profit/loss calculation.

Let's start!

Start forex trading

1) Open Account with a Forex Broker

In order to trade forex, you need to find a CFD broker. There are numerous forex brokers available for local traders such as HF Markets, Exness, XM Forex, FXTM, Forex.com, FxPro, Oanda etc.

We have compiled the list of best forex brokers for Nigerian traders based on 9 factors. All of the brokers that we recommend on our website have proven track record of honest dealing with traders, low spread, and are authorized/regulated by top-tier global Regulatory bodies (FCA, FSCA, CySEC & ASIC) for the safety of your funds.

HF Markets is a well-regulated broker (Tier-1 & Tier-2 regulated) for Forex trading as per our research & comparison.

HF Markets is our recommended Broker for forex trading

  • Competitive Spread on majors (and zero fees on deposits & withdrawals). For ex. typical spread of 0.1 pips + $0.6 commission (roundturn for 1 Mino Lot) for major like EUR/USD. 1.2 pips spread for EUR/USD with Premium Account.
  • Free demo Trading account
  • Easy to use (mobile-friendly) MT4 & MT5 platforms
  • 53 Currency Pairs, 100s of CFDs on Metals, Commodities, Indices etc.
  • Fast Withdrawals in Nigeria via Bank transfers & Good support
  • Multiple Account Base Currency options including USD, EUR & NGN
  • Local deposit & withdrawal options are available, including online bank transfer.
  • Your funds are 'considered' safe – HF Markets is regulated with UK's FCA (Financial Conduct Authority), CySEC (Cyprus Securities Exchange Commission) and FSCA (Financial Sector Conduct Authority in South Africa)
  • HFM have a local office & phone no. in Nigeria.

Start Trading at HF Markets Important: Forex Trading is risky, so have a working strategy before trading with real money.

Start with Demo Accounts: Never start trading directly on a live account if you are a beginner becaue your real money will be at risk. We advise you to first create a demo account with the broker of your choice and then learn to trade by building & testing out a trading strategy, and figure out what works for you in different market conditions. Only once you are confident about your trading style & strategy, only then you should decide to trade with real money on a Live account.

Once you have found the Forex Broker of your choice, you can then open an account with that broker to start trading (or demo account to learn). This account will enable you to place your trades in the interbank market at the live currency prices.

If you are creating a Live account: All reputed brokers have some sort of KYC (ID & Address proof verification) & you cannot start trading in the market without verifying your account with any of the regulated broker. Once the verification is complete, you will need to make a deposit to fund your live account. These funds will be used to place live trades at the real market prices.

2) Place your First Trade

After you have opened your Live account & funded it real money with your Forex broker, you can then open your first trade. The two positions that you can take in the Forex market are either the “long position” or the “short position”.

You need to study and analyse the trading charts or the market news & then decide whether you want to place a buy order or a sell order.

The long position implies that you are buying a currency pair and are betting on it to rise in value in the future. For ex. If you currenny market price of EUR/USD is 1.1000 & you believe that it would reach 1.25 in the near future then you can place a buy order, hence you would be buying Euros & selling US Dollars.

See the example below for a profitable Long/Buy Order in Forex. Long Order in Forex

Buy order in forex is similar to buying an equity stock. You buy the currency at a low price, and once it reaches a higher value, you can then sell off the currency, thus making your profit.

The short position can be taken when you believe the price of the currency will fall in the upcoming period. If the present price of EUR/USD is 1.10 & you think that it would fall to 1.0 in the near future then you can place a sell order in the marker.

Below is an illustration of how you can make profit with a Sell Order in Forex. Short Order in Forex

You can place a sell order when the currency is at a higher price and then when the value falls significantly, you can buy it back at lower price, thus realizing your profit.

3. Close the trade

To realize your proft (or loss), you need to close the trade that you opened.

Profit or Loss? Depending on the movement of the currency pair that you were trading, you will either be profitable or make a loss once you close the trade.

Example: If you have placed a buy/long order on EUR/USD, and the price of the pair goes up by 100 pips, and you decide to close the trade. You would have made a profit of around $100 (minus spread) if you are trading 1 Mini Lot.

But if the EUR/USD goes down 100 pips, and you decide to close the trade. You will make a loss in this case.

To understand it more, let's use an example again. If you place a 'Short' trade for EURUSD at 1.0000, expecting it to go to 0.9900, and the price does go in your direction, you would profit from this trade.

The exact profit that you make will depend on your position sizing (which depends on your account size & leverage used).

But if in this same example, the price of EURUSD goes to 1.1000, and you have your stop loss at that level (or probably you don't have enough margin to keep the position open), then you will realize a loss of 100 pips, because the price has moved again your direction.

Also Read: Our detailed guide on How to Trade Forex in Nigeria

There are many different strategies that are followed by successful forex traders. But most of them fall into 2 categories which are 'Technical Analysis' and 'Fundamental Analysis'.

Technical Analysis involves the study of chart patterns, currency trends, using indicators like RSI, MACD, Bollinger Band & divergences etc. and then placing the order based on the analysis of these technical factors & chart patterns. While the fundamental analysis is mainly related to trading based on Economic outlook for a currency which could be impacted by news events like GDP, Unemployment data, balance of trade, capital outflows etc.

In this chapter we will only analyse popular technical analysis strategies.

Forex Trading Strategies

Fundamental Analysis

In fundamental analysis, you look at the events that will have an impact on the world. On of the most important factor for example is the 'Interest Rates'. Let's understand it,

Interest Rate differentials can cause high volatility in the Forex Market. For example, during 2022, the Federal Reserve in the US had to tighten their monetary policy to control high inflation. And they were the first major Central Bank to tighten ahead of the ECB, BoJ & BoE. This has caused the US Dollar to rise sharply against the EUR, JPY, GBP & other major currencies in 2022.

In Macro, at the start of 2023, when all the other Central banks, like the ECB & BoJ are also going into their tightening cycle by increasing interest rates (and also QT in case of ECB), this reduces the interest rate differentials between the US & European Central Banks. This causes the Dollar Index to be more stable.

Another major reason for the appreciation in US Dollar is the Risk Off global crisis (or Deflation). During such events like the GFC in 2007 or Covid crisis & risk off in the markets at the start of 2020, all the capital in the world flows to US Dollar from other assets, and this causes the USD to rise against almost all other Fiat Currencies. So, during this period, you will see the USD Dollar rise against all the other major currencies.

The cyclical currencies of major commodity exporters like AUD, ZAR, CAD, BRL etc. are most affected during such events of Risk off & growth Slowdown as the commodity prices are dropping. On the other hand, these currencies do well during inflationary cycles.

Understading what moves which currency pairs can help you understand which currency should you trade in which part of the cycle. For example, the Australian Dollar can be affected by the Slowdown in China, as AUD is generally a commodity currency. In general, Commodity currencies do well during risk on events or global economic upturn, so that is the period when you should hold these currencies.

Technical Analysis

Most technical forex trading strategies involve some level of study and analyse of the chart or trend patterns of the currencies before making an actual trade. Good thing is that almost all brokers around the world now offer MT4 or MT5, which are excellent platforms for sound technical analysis. There are also many popular Third-party platforms like Tradingview, which is also good for data & analyzing charts.

Advise: Building an understanding of the current market scenario & having a working strategy before placing a live trade is highly recommended. Only based on your strategy, you can make actually get the best returns in the future.

For example, if you are have a view that the Global economy is going to grow, then you should use technical analysis to find best Risk Reward entry into currencies that do well during growth cycles. Similarly, if you have a view that the growth is going to slow down, then you should use technical analysis to find entries with 1:5 Risk/Reward for trading that view.

Depending on how you are as a trader, you should hold your position for intraday, or for few weeks. You should develop your own techniques based in your market views & use technical analysis to time the trades.

Now let's look into some of the most popular forex trading strategies.

1) Trend Trading or Support & Resistance trading

In theory, trend trading involves identifying a trend, waiting for the pullback in price & then following the continuation wave. This is one of the most profitable trading strategy in a trending market & was also the main strategy for highly successful traders like Jesse Livermore.

But identifying the underlying trend is most important. You can simply use 200 Day Moving average to identify the Long to Medium term trend. If the price goes below this Long term average, then you should exit your Long positions.

You can also use simple Oscilator indicators like RSI to identify Overbought or Oversold conditions to exit your entries.

Let's say the high for EUR/USD for the last 3 months is 1.31 (making it a price level of importance). We call the high the resistance. Do note that this is just a hypothetical example & not real resistance on EURUSD chart.

Support & Resistance in Forex Trading

There can be resistance levels on lower time frames as well, but we will use a higher time frame to find important levels for positional trends.

Once the price crosses the previous high to achieve a higher high (price crosses 1.31 in this example), there is a huge chance that the old high will become the new low in a trending market. The low is now called the support.

Stick to the Majors: In the current scenario, there are seven major currency pairs which constitute almost 80% of the transactions. These major pairs include USD/EUR, USD/GBP, USD/JPY, USD/CHF, USD/AUD, USD/CAD, and USD/NZD.

If you are a new investor, it is a good strategy to begin trend trading on one of these pairs. This is because these pairs are very liquid, have low spreads and have stable volatility. Since these currencies are stable in their movements, they will help you in managing your risk initially (by reducing volatility against your direction). It is always a good strategy, to begin with, a USD pair because of stability. There are various other pairings available which do not include the USD.

2) Price Action Trading

This is one of the strategies that many traders use. Under this trading strategy, you look for specific price actions on currency pairs & only trade those.

For example, one popular price action is 'Engulfing' bars. It can be bullish or bearish engulfing, depending on the setup.

But price action in isolation would have lower chances of success. If you use price action in confluence with the 'location', then the chances of each trade working are much higher.

Below is an example, of Bullish engulfing on USD/JPY on a key location, which is the 50% fib retracement of the last swing, and a key demand zone. The chances of it working were higher, but that does not mean it would definitely work.

Price Action in Forex Trading

To trade engulfing, you place the stop few pips above/below the high/low. Adjust your position size based on the risk & pips you need to risk for this stop loss.

Note that for any trading strategy to be successful, you need to see the outcome over a 'series of trades'. By this, I mean a single trade can or may not work.

For example, if you are are long USD/CAD based on an intraday price action like Bullish Engulfing on 15 minute, near an important support level on the daily, then your changes of success are high. But that does not mean the trade will definitely be profitable, you could get stopped out.

Therefore, you must understand that a single trade you take could be a loser. But what matters is your risk reward, and win percentage over a series of similar trades.

2) Day Trading

Day trading is not strategy per se, it is more of a trading routine. In this strategy, you place your trades, and close them within the same day or within a 24-hour window to book your profits (or loss).

You can realise profits quicker in this strategy although the risk is also higher, as most of the traders try to gain high returns with small capital. This is a very common strategy followed by a wide variety of traders, but you must understand its risk as well. Another strategy is known as scalping. This strategy is based on opening a position for a short time and closing it to make a small profit. These strategies can be a great way to book profits quickly.

It is very important to note that Day trading is very risky & only suited for Professional traders. You could lose when you are trading CFDs & forex using leverage.

Normally in day trading, you plot the levels of importance for you & trade based on those levels. This levels can be derived from Standard deviations, historical support & resistance, or by using technical indicators.

If you are ready to start Forex trading then you may have doubts on which broker or app should you choose to trade online.

In the table below, we have compiled list of brokers & their trading platforms that we have found to be best in terms of security, withdrawal time & more in meeting the expectations of profitable traders in 2024.

We have only selected brokers that are regulated & offer both Mobile app & web trading platforms.

Here’s our list…

Forex Trading Platforms

2024's Best Forex Trading Platforms

Forex Broker Regulation Leverage Account minimum Forex Trading Platform(s) Visit Broker
HF Markets FCA (UK), FSCA (South Arica), CySEC 1:1000 ₦1800 MetaTrader 4, MetaTrader 5 for web & mobile Visit HFM
FxPro FCA (UK), FSCA (South Arica), CySEC 1:500 ₦5000 MetaTrader 4, MetaTrader 5 & cTrader for web & mobile Visit FxPro
Octa MISA, FSCA, CySEC 1:500 (variable based on account type & asset) ₦36,000 ($20) MT4, MT5 on desktop & mobile. And OctaTrader for web & mobile. Visit Octa
XM Forex FCA(UK), CySEC, ASIC (Australia), IFSC(Belize) 1:888 ₦1800 MetaTrader 4, MetaTrader 5 for web & mobile Visit XM
Exness FCA(UK), CySEC 1:2000 ₦350 MetaTrader 4, MetaTrader 5 for web & mobile Visit Exness
Avatrade FSCA (South Africa), ASIC (Australia) 1:1000 $100 MT4 for Web, Desktop & Mobile App Visit Avatrade
FXTM FCA (UK), FSCA (South Africa), CySEC 1:1000 ₦2000 MetaTrader 4, MetaTrader 5, Webtrader, iOS, Android apps Visit FXTM
Alpari CySEC 1:1000 ₦0 MT4, MT5 for web & mobile. Plus Alpari Invest app. Visit Alpari

Forex Trading, like any other market investment has many benefits but also carries significant risks.

On the positive side, forex trading has the potential to bring good income if you trade with a sound working strategy while properly managing your risks. You don't need very high capital to start.

On the downside, one bad trade without proper money management can be disastrous, or if you are trading with real money without practising on demo & don't understand the risks then also you can lose everything on a single trade. It is really important to understand all the risks.

Let’s analyse the benefits & risks of trading Forex!

Pros & Risks of Forex Trading

Pros of Forex Trading

Pros of Forex Trading
  1. Start with Low Capital: You can start trading in the forex market with as low as NGN 1000, as brokers these days have very low minimum deposit & very high leverage. But it is highly recommended that you only start trading with a capital of atleast ₦50,000 & never risk more than 5% of your capital on a single trade. It is important to trade with not too low capital because with low capital you would likely be using very high leverage to make money. This could cause huge loss to you & you might lose all your capital on a single trade.
  2. Huge Trading Volume: Forex market is the largest market in the world with close to 6.6 Trillion USD daily trading volume. This makes it very liquid & you can easily place very large orders as well & close them without having to worry about price volatility because of your trade (unless there is some major event). In most cases, you would be able to open & close your positions at the price that you want.
  3. Buy/Sell: In forex, you can open take both short or long position to make a profit. If you feel that the particular currency is on the way up, you can buy it and go long. On the other hand, if you feel that a currency is not performing well, you can sell it and go short.
  4. Open 24 hours: Another key benefit of forex trading is the ability to trade 24 hours, for five days in a week. These trading hours are much longer compared to traditional stock exchanges which allow you to place an order or close it during limited trading hours. In forex, you can place a trade & close it anytime during the week instead of waiting for the markets to open during the day. You might want to check out our guide on best time to trade forex in Nigeria as the opportunities to make profits are higher during certain market hours.
  5. Currency Pair choices: Another major benefit is that forex trading allows you to trade in a wide range of currencies from around the world. This includes the traditional major currencies such as EUR and USD as well as exotic ones such as TRY and MXN. Also, most forex brokers offer CFD trading on range of asset classes like Commodities, Metals, Indices etc.

Risks of Forex Trading

There are certain risks attached with forex trading, which you need to be aware of. Risks of Forex Trading
  1. High Risk with Excessive Leverage: Almost all Forex brokers offer very high leverage, which is normally as high as 1:1000 in many cases. This means that you can place $1000 worth of trade (1 Micro Lot) in the market with just $1 trading capital. But, using a very high leverage puts your trading capital at huge risk of depleting very fast with even a single bad trade. Ex: Let's say that you deposit $100 in your trading account, and you use 1:1000 leverage to place a 1 standard lot buy trade on EUR/USD. In this example, you can lose your full capital if the price goes just 10 pips against you. If the spread at the forex broker is 1 pips for the instrument that you are trading, then it means that the position is already in 10% drawdown. It is advised to always use proper risk management & never risk more that 5% of your trading account's balance on a single trade. You should never use more than 1:30 leverage on Forex. Major regulators like FCA, ASIC have limited the leverage on Forex & CFDs, but forex brokers that operate in Nigeria are able to offer very high leverage of as high as 1:2000 at Exness. So, it is really important to self regulated your leverage, and not trade with over 1:30 leverage with Forex.
  2. Avoid Bad Brokers: There are so many forex brokers out there that lack transparency, & are not even regulated by any Top Tier regulation & may show some Offshore regulation to tell customers that they are regulated. You should definitely avoid brokers that promote forex as a get rich quick schemes. Be wise enough to choose a broker that is regulated by major regulators like FCA, CySEC etc, has years of experience, must have good reviews & is transparent in their dealing of any issues. A good Forex Broker will be regulated with multiple Top-tier regulated, have low fees, and offer quick withdrawal methods to traders in Nigeria.
  3. Risk of Volatility: There are a wide range of factors which can influence the value of currencies (causing extreme volatile, especially for the non-conventional currency pairs), not limited to political or macro & micro economic factors. And unfortunately, you cannot control these factors. So it is really important to watch out for any news before placing or closing a trade & have strict stop loss limits in place to control any losses in case of bad event. There have been events during which the price of a currency pair can move a few 100 pips with minutes, and in such a case you could lose most of your capital or even go into negative. So, it is really important to understand this risk.
  4. Emotional Stress: Let's face it, forex trading can be extremely challenging emotionally. One bad trade can result in big losses if you are not following good risk management & dealing with losses can prove to be very difficult. This can be emotionally stressful for you especially if you are considering forex trading for a living.
  5. Illiquid Currency Pairs: Some exotic & minor currency pairs can be illiquid, and these pairs can move a lot on daily basis. Also, the spreads on such currency pairs is a lot higher, leading to very high transaction charges. Some brokers may even widen the spreads during off market hours (like in the mornings during illiquid sessions), which can lead to positions showing much wider losses or low temporary profits. It can even lead to margin call if your account does not have enough balance.
  6. Forced Close of Positions: There is a risk that your position could get stopped out or 'cut' by your forex broker without your consent. Then can happen if your account balance reached a certain threshold that is lower than the margin required to keep the position active. This can be caused because of various reason, most commonly during events, or illiquid markets.
  7. Slippage: The currency pair which you are trading may fluctuate within micro seconds, especially during major news events or even when some trader is placing large orders. This can cause the prices to move rapidly, without your limit orders, market orders getting filled at the desired prices. To avoid this risk, you should check whether your forex broker offers some sort of protection against slippage risk. This can be in the form of ability to set the max. range of fluctuation to be filled at.
  8. Wrong Position Sizing: One of the major mistakes that new & even professional traders make is not trading the correct position sizing. The position size which you trade should be relative to your equity & the quality of the trade. Let's take an example. If you have an account size of $1000, many traders make the mistake of trading multiple mini lots or even standard lots with this capital. This is the perfect way to ruin. Let's say that you can not risk more than 5% max. on a single trade, it would mean you cannot lose more than $50 of one trade. If your stop loss for the trade should be 50 pips, then you should not trade more than 1 mini lot (10,000 units) on this trade. If your stop loss should be 100 pips, then your position sizing would reduce to 0.5 mini lots & so on. In this example we have assumed the trades to be on majors, for easier calculations.
  9. Risk of Ruin: Many traders can fall into this trap & lose all their capital. This can be due to multiple reasons from the risks listed above. The number one rule for any forex trader should be preservation of capital, and but following proper risk management per trade, and for account in general, you can pretect yourself against this risk.

How you can manage these risks? Be cautious, have a fully tested trading strategy (on demo) and use good risk management to be successful at forex trading.

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