Non-market risks in forex trading

The difficulty of trading on the currency market is that it is accompanied by considerable risks. If a trader neglects them and does not follow the trading rules that help to reduce risks, it will lead to the loss of the deposit. Trading risks have always been and always will be in the market. However, with a serious approach, a trader can minimize their impact on trading results. But today I want to talk about another category of negative factors that every trader should be aware of and take possible measures to protect their funds. These are non-market risks. This article will be especially useful for beginner traders, many of whom are not even familiar with such risks. Market risks can be divided into 4 main groups.

Legislation

Legislative acts adopted by different governments on the regulation of financial markets can cause non-market risks. This is because laws are not always perfect. Deficiencies of lawmakers can contribute to various kinds of manipulations in the foreign exchange market. And that, in turn, will affect the exchange rate. The degree of influence of this factor on the currency market is almost impossible to predict.

Policy

The foreign exchange market always reacts actively to important political events, among which there are both expected and unforeseen. The latter include the unexpected resignations of high-ranking officials. Examples of expected market reactions to political events are the weakening of the dollar after Donald Trump’s victory in the presidential election and the fall of the pound after the announcement of the results of the referendum on the country’s exit from the EU.
This also includes protests in one country or another. Thus, for example, the protests of “yellow vests” in France had a negative impact on the euro rate.

Natural and man-made disasters

Market risks associated with these factors are the most unpredictable. An example of their influence on the exchange rate of the national currency is Japan. The country has experienced periodic powerful tsunamis that cause significant damage. The Japanese yen shows a decline in such periods.

Terrorism

Terrorist acts always have a negative impact on the currencies of the countries where they occurred. We’ve seen this repeatedly in recent years. For example, terrorist attacks in France and the United Kingdom caused the euro and British pound to fall.

Non-market risks are difficult to estimate and predict. But traders have to watch the news carefully. And if there is a report of an important political event, natural disaster or terrorist act, it is necessary to take immediate steps to preserve its deposit. Maybe you should close all trades and stay out of the market for a while.Fyodorov’s Inga28.12.2018