Forex Investment and Currency Trading

The developments on the international capital markets have not only led to a range of new products. Modern technologies have in some cases also altered the way securities are traded. It is now possible to buy and sell the same security, money market instrument or derivative on the same day. This is called day trading. The intention is to take advantage of small and short-term fluctuations in the price of an individual asset so as to sell it at a profit or to limit price risks. If you conduct day trading, you should be aware of the particular risks involved.

Immediate loss, competition with professionals, and requisite knowledge

If you conduct day trading, you should note that such trading may lead to immediate losses if unexpected developments cause the value of the financial instruments you have bought to drop on the same day and you are forced, in order to avoid any further risks (overnight risks), to sell these instruments before the close of trading on that day at price below the price at which you bought them. This risk increases if you invest in securities that are expected to fluctuate sharply in price in the course of a trading day. Under certain circumstances, you may lose all the capital you have used for day trading.

Please also note that in attempting to make profits by means of day trading you will be competing with professionals and financially strong market participants. You should therefore make sure that you have an in-depth knowledge of securities markets, securities trading techniques, securities trading strategies and financial derivatives.

Greater loss potential from trading on margin

If you cover your day trades not only with capital of your own but also with borrowed funds (trading on margin), you should remember that you will be required to pay back these funds whether or not you make a profit on your day trades.

Costs

Regular day trading leads to a disproportionately high number of trades in your portfolio. The costs incurred (e.g. commissions and expense) may be unreasonably high in relation to the capital you invest and the profit you make.

Unlimited losses associated with forward trades

Where forward trades are involved, there is also the risk that you may have to provide additional capital or security. This is the case if you incur losses in day trading that exceed the capital you have invested or the security you have deposited.

Risks of proximity to other investors influencing your behavior

If special rooms are placed at your disposal for conducting day trading, the proximity to other investors in these trading rooms may influence the way you behave.