Risk tolerance and forex trading

Risk tolerance and forex trading

A trader should carefully consider and assess their risk tolerance before considering trading forex. Many of the same analysis techniques used for equities, like indicators used to trade stocks, futures, or options, can also be applied to forex charts. Even simple trendlines can potentially be useful when looking for the next major trend in a currency pair. However, traders should consider that past performance is no guarantee of future results. With technical analysis2 and charting—prices fluctuate, and the charts follow the action (see image below). Note that while technical analysis can provide insight, it shouldn't be the only tool used to evaluate trades, as trends can change at any time. Traders should consider using various analytical tools to make decisions.


Source: thinkorswim® platform

For illustrative purposes only. Past performance does not guarantee future results.
Trading currencies can also provide portfolio diversification. It's another asset class and another opportunity to initiate positions to build a portfolio. For example, an investor's stock portfolio might not be doing well, and some of the losses might be offset by positive results from a profitable currency position. However, forex trading also has its own risks, and diversification does not guarantee against investment loss.

Potential risks of forex trading

Before deciding to engage in forex trading, it's also important to understand the risks. For example, the interest paid on a short currency could add up and reduce the value of a position.
Additionally, the leverage involved can lead to losses that are greater than the amount of your original investment. Due to the dynamic nature of currency markets, the situation can change quickly, affecting the value of a position and resulting in unexpected losses. Before starting, it's important to understand your personal risk tolerance and acknowledge the potential losses.

Forex trading opportunities

The forex market offers both short- and long-term potential trading opportunities. For example, an investor focused on fundamental factors, such as interest rates and economic data, can trade on information from news releases in search of short-term profits or even intraday moves. Economic news releases tend to cause very short bursts of activity in the financial markets, including volatile moves in currency pairs.
To start trading forex with Charles Schwab Futures and Forex LLC, traders need to open a standard brokerage account. The brokerage account can either be an individual, joint, corporate, LLC, trust, partnership, or sole proprietorship. The brokerage account needs to be approved for margin privileges. Once the brokerage account is opened and enabled for margin privileges, traders can then apply for forex.
Once approved, traders can use thinkorswim to monitor the forex market, plan strategy, and implement their forex trades.
1Profit and loss of the aggregate total of all gains and losses over a specific period of time (e.g., day, month, year).
2Examines historical trading data such as price and volume data to identify previous chart patterns with the hope of anticipating stock price movements. Some technical analysis tools include moving averages, oscillators, and trendlines.
Forex trading privileges are subject to review and approval by Charles Schwab Futures and Forex LLC, a CFTC-registered Futures Commission Merchant and NFA Forex Dealer Member. Not all account owners will qualify.
Charles Schwab Futures and Forex LLC is the counterparty to all forex customer trades, and exclusively uses straight-through processing such that it automatically (without human intervention and without exception) enters into the identical but opposite transaction with another liquidity provider (creating an offsetting position in its own name).