When referring to markets that are highly risky and highly instable, the
first market that usually comes to mind, at least in the minds of most, is the
Forex market. Surely, when trading with currencies you are likely to find
yourself in the middle of a highly volatile market( since a currency’s value is
affected by a lot of factors, including, though not limited by, disasters,
political changes, etc. ).
It is no secret that the movements and instability of the currency market is
what allowsa Forex trader to generate a profit, but this too creates a more
risky market. As you certainly know, elevated risks can easily become elevated
losses. When engaging in forex trading, a Forex trader will attempt to mitigate
risks, and typically, a well educated and skilled individual will succeed in
reducing risk. Nonetheless, there could be instances that no matter what a
Trader does; they will end up having to put up with losing trades. At Times this
is a consequence of mistakes made when making decisions, but in other cases it
is a matter of just chance (and misfortune at that ).
Given that trades are rarely closed immediately, there's a time frame(
between the time when you enter the order and the time when it is closed) during
which the currency’s price can unexpectedly change; these unforeseen changes can
generate profits, but they could also generate losses for a Trader. As an
example, visualize that you've set a stop- loss order so as to mitigate losses
in a currency trade. Now, it comes the time when the currency you're trading
starts to plummet; the currency gets to the stop- loss level and the platform
quickly issues an order to stop and exit the trade. Nonetheless, through the few
seconds when the order takes to be processed, the currency’s value continues to
drop; by the time the order is finally processed your losses have increased as a
result of these few seconds. This problem that takes place given the
impossibility of orders to be processed instantly is known as slipage, and it
should be very clear right now that it can be potentially devastating for any
Trader. Indeed, it's true that slippage may also work out to a Forex trader’s
advantage, but in general it's a problem that has negative effects.
In the Forex market slippage is oftena risk that fx traders must deal with,
specially at times when the forex market is highly volatile or unstable. In
addition, it's very important that you understand that a Forex broker will
usually try to use slippage to his or her own advantage, even if this means
generating losses for you. Don't Forget, you are trading in a Forex broker’s
platform program, so they may very well work the market’s volatility to their
advantage and use slippage as a means of creating profits at your expense.
Despite of this, forex traders generally accept the occurrence of slippage,
and in most cases, they are willing to risk it. Notwithstanding the risk of
slippage, the potential profits are much too great to be ignored, and thus fx
traders are willing to keep on trading, even at times when volatility is
high.
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