Is Forex Dangerous? Risks and Precautions You Should Know

Forex (foreign exchange margin trading) is attracting attention from many people as an appealing investment method that allows large trades with small amounts of capital. However, on the other hand, you may have heard voices saying it is “dangerous” or “unprofitable.” In this article, we explain the dangers of Forex and the risks you should know.

In conclusion, Forex is a “dangerous” investment if you start without understanding the mechanism. However, if you correctly understand the risks and take proper measures, it is possible to aim for profits without overexertion.

This article clearly explains the main risks of Forex and the points that beginners should pay attention to.

Reviewing the Mechanism of Forex

Forex is short for “Foreign Exchange,” an investment method where you buy and sell different national currencies to make a profit.

For example, if you buy USD when “1 USD = 150 JPY” and sell it when “1 USD = 152 JPY,” the 2-yen difference becomes profit. Earning from such price differences is the basis of Forex.

In addition, Forex uses a system called “leverage,” which allows large trades even with small amounts of capital. This is the greatest appeal of Forex, but at the same time, a factor that increases risk.

For details on how Forex works, please read this article as well.

Main Reasons and Risks Why Forex is Called “Dangerous”

1. Risk of Loss Expansion Due to Leverage

In Forex, even for individual transactions within Japan, leverage of up to 25 times is available. For example, with 100,000 yen in capital, you can trade worth 2.5 million yen.

However, if the market moves against your expectations, losses will expand accordingly.

• Even a 1-yen movement can lead to significant losses if the trade amount is large.
• If you over-rely on leverage, you may lose your capital at once.

Countermeasure:

Beginners should start with low leverage (2–5x or less) and first learn capital management.

2. Risk of Forced Stop-Out (Loss Cut)

If the balance of your Forex account falls below a certain standard, your open positions will be forcibly closed — this is called a “loss cut.” It is a mechanism to minimize investors’ losses, but depending on timing, it may result in locking in large losses.

• During sudden market movements (economic releases, geopolitical risks, etc.), loss cuts may not keep up.
• If funds are small, the risk of loss cut increases.

Countermeasure:

• Deposit sufficient margin into your account
• Develop the habit of regularly checking the “margin maintenance rate”

3. Losses Due to Emotional Trading

Since Forex can be traded 24 hours a day, many people end up trading too frequently. Especially after a loss, if you trade emotionally thinking “I want to recover,” it may lead to further losses.

• “Chicken trades” where you close quickly without letting profits grow
• “Holding onto losing positions” because you cannot accept the loss

Countermeasure:

• Decide trading rules in advance and act based on rules, not emotions
• Keep trading records and make it a habit to review them

4. Costs Such as Spread and Swap

In Forex, the “spread” (the difference between the buying and selling price) functions as the actual transaction fee. Depending on the currency pair, swap points may be negative, leading to costs for long-term holding.

• The narrower the spread, the better (especially important in scalping and day trading)
• Selling high-interest currencies is likely to result in negative swaps

Countermeasure:

• Choose brokers/account types with narrow spreads
• Check swap point conditions in advance

5. Difficulty of Predicting the Forex Market

Forex is affected by various factors such as economic indicators, interest rates, and geopolitical risks. Therefore, even professionals cannot make perfect predictions.

• It is important to avoid large losses even if predictions are wrong
• Chart analysis and economic news are only “one of the reference materials”

Countermeasure:

• Learn while gaining experience through small trades
• Do not overtrust your own predictions

Mindset and Countermeasures for Safe Forex Trading

Summary: Forex is “Dangerous,” But If You Learn Properly It Also Has “Potential”

It is true that Forex is a risky investment, but the correct expression is that it is “dangerous for those who cannot manage risk.”

If you acquire sufficient knowledge, act calmly, and accumulate experience steadily within your means, Forex can be fully utilized as one way to build assets.

Start small, learn at your own pace, and begin step by step.
The basics of investment start with “knowing.”

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