Currency risk

Currency risk is the danger of losing capital due to changes in forex prices. In the context of trading, this is the risk to a trader’s portfolio if currency markets experience strong price changes. Trading forex itself can be risky, but it’s not just the forex markets that can be directly affected by currency risk. Due to the interconnectivity of the financial markets, a significant price change in one currency can impact several other currencies, or even other markets such as shares, indices or gold. Imagine you’ve bought gold in USD. If a Federal Reserve interest rate decision causes a depreciation of the dollar, you will lose money on your position as a result of currency risk.