The election of President-elect Donald trump lead to volatility levels even higher than the record Brexit event earlier in the year. It may be no surprise based on his many contradictions as a candidate leading analysts unsure of the future ahead. No financial market has seen greater volatility that currency markets.
While volatility can lead to opportunity forex trading, it also increases risk which is amplified by leverage. In fact, Australian traders have a plethora of choice when it comes to high leveraged brokers offering 500:1 leverage.
The good news is there are measures that some forex brokers offer to manage risk. With turbulence not expected to reduce during a Trump presidency, the team at compareforexbrokers.com.au highlighted the three core measures to check when choosing a broker.
1) Negative Balance Protection
Those who are used to non-leveraged financial products like shares would never expect to lose more than their deposit. This though is a real possibility when trading CFDs or currencies in turbulent markets. ‘Gapping’ which is when a currency has a sharp movement can lead to the price required to leave a zero balance to not be achieved. This can lead to a negative balance amplified by leverage.
To protect investors some Australian forex brokers like Pepperstone and IC Markets have built-in systems within their platforms like cTrader and MetaTrader 4. They close-out trades when a trader’s balance approaches zero but don’t guarantee it won’t go into negative.
The highest level of negative balance protection though is offered by EasyMarkets and Plus500. Both brokers have a guaranteed no negative balance policy and will wear the difference if they are unable to exit a trader when they exceed a zero balance.
2) Stop Loss Facilities
All forex brokers offer platforms that have stop loss functionality. This allows a trader to set when a trade should be closed based on maximum profit or loss amount. The feature is popular as it can be difficult to calculate the impact of currency movements after leverage is taken into account.
The issue of a stop loss is that for the same reason that a trader can go into negative balance, the same phenomenon (known as slippage) can occur on individual trades. This can lead to losses on a trade exceeding those set by the trader.
To protect Australian traders, a number of forex brokers offer guaranteed stop loss facilities including IG, EasyMarkets and Plus500. This premium feature needs to be selected on the trade and protects the trader from losing more than the amount predetermined. The downside of this feature is that brokerage fees increase so traders are normally selective when using this facility.
3) Deal Cancellation
This is the newest feature in Australia introduced by EasyMarkets allowing currency traders to cancel trades within 60 minutes of making them. This means that if the market moves in the wrong direction for a trade where this feature is activated, the trader can cancel the trade to avoid making the loss required to close off the trade. It’s critical to note a trader must first select ‘deal cancellation’ when making the trade and then cancel within an hour for it work.
Overall, volatility that the Trump Presidency provides a great opportunity for currency traders but also increases the risk. The forex broker you select will impact trading risks from the level of leverage available to the risk management facilities such as guaranteed stop loss available. It’s critical to match the forex broker to your trading style, experience and risk appetite to make sure you get the most out of currency trading.
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