Why Forex Is Safer Than You Think

Whenever money is involved in something, caution must be applied and in forex trading, where fortunes can be made and lost in the blink of an eye, that is particularly true.

However, the truth is that forex trading is no more risky than any other type of trading; such as stock, bond or commodity trading. In fact, in many ways forex trading is a lot safer than those other forms.

Low cost

Compared to other markets, the commissions to trade forex are extremely small. Many forex pairs can be bought and sold with a spread of just 1 pip so the cost of each trade is not too restrictive. As well, the account minimums required to trade forex are notoriously small. These days, it’s possible to start trading forex with just a few hundred dollars.

In comparison, stocks can trade with spreads as wide as 1.5% per round trip. They may also incur a fixed commission of $6-14 per trade. It’s a similar story for commodities, which also require large capital deposits to start trading – thousands of dollars in most cases.

Currencies never go to zero

While a stock can go to zero if it goes bankrupt, rendering your trade worthless, a currency will never go to zero, since it will always retain some value as the nation’s final monetary reserve.
In forex, the worst case scenario is a severe currency depreciation, for example if a country defaults on it’s debt. The currency could drop sharply and may be replaced but it will never go to zero like a stock could. It will retain some value and investors will be allowed enough time to convert their cash into something else.

Forex is highly liquid

Although it’s considered highly risky, foreign exchange is the most widely traded market in the world with a daily turnover of over $4 trillion. What that means is that forex is an extremely liquid investment, much more liquid than stocks or commodities.

Because of it’s high liquidity, forex markets are much less susceptible to slippage or extreme price moves. In fact, forex pairs rarely move more than 1 cent per day, which is why forex traders must use high leverage in order to capture real profit gains.

Stocks on the other hand can experience very large episodes of slippage. A stock that drops below your stop can result in a heavy and unplanned loss. That’s far more unusual with forex, where prices move in a more uniformed fashion most of the time.