Speculative currency trading is a high-risk/high-return game. Currency investing diversifies this risk by taking many different positions in many different exchange rates. The risk/return characteristics of currencies are different from other asset classes and among individual exchange rates.
The volatility of major currency pairs, such as EUR/USD, is typically less over the course of a year than the volatility of the S&P 500 Index. The problem is that investors look at short-term volatility and use that as a general measure of risk. That won’t work for currencies as an asset class.
If all forex participants were speculative traders, the story would be different. But they’re not. The majority of forex trades are made not to bid up prices but to cover outstanding positions and otherwise maintain stability.
Positions are taken based on many different perceptions of the market—using strategies that include technical analysis, economic indicators, interest-rate differentials (the “carry tradeâ€), and derivative plays based on emerging as well as major currencies. This multiplicity of “currency views†enhances the natural diversification effect of currency investing.
In the short term, there may be no easily defined relationship between risk and return in forex. Over longer periods, however, valuation trends are slow to change, and it is possible to take advantage of established flows. Read more
Do you want to learn more?
VIDEO: MONTHLY WEBINAR: Exploring the Coast Line of Foreign Exchange Land - Part I - Gonçalo MoreiraVIDEO: MONTHLY WEBINAR: Exploring the Coast Line of Foreign Exchange Land - Part II - Gonçalo Moreira
VIDEO: MONEY MANAGEMENT - Why your money management sucks and what to do about it! - Dirk du Toit
Editors’ Picks
AUD/USD posts gain, yet dive below 0.6500 amid Aussie CPI, ahead of US GDP
The Aussie Dollar finished Wednesday’s session with decent gains of 0.15% against the US Dollar, yet it retreated from weekly highs of 0.6529, which it hit after a hotter-than-expected inflation report. As the Asian session begins, the AUD/USD trades around 0.6495.
USD/JPY finds its highest bids since 1990, approaches 156.00
USD/JPY broke into its highest chart territory since June of 1990 on Wednesday, peaking near 155.40 for the first time in 34 years as the Japanese Yen continues to tumble across the broad FX market.
Gold stays firm amid higher US yields as traders await US GDP data
Gold recovers from recent losses, buoyed by market interest despite a stronger US Dollar and higher US Treasury yields. De-escalation of Middle East tensions contributed to increased market stability, denting the appetite for Gold buying.
Ethereum suffers slight pullback, Hong Kong spot ETH ETFs to begin trading on April 30
Ethereum suffered a brief decline on Wednesday afternoon despite increased accumulation from whales. This follows Ethereum restaking protocol Renzo restaked ETH crashing from its 1:1 peg with ETH and increased activities surrounding spot Ethereum ETFs.
Dow Jones Industrial Average hesitates on Wednesday as markets wait for key US data
The DJIA stumbled on Wednesday, falling from recent highs near 38,550.00 as investors ease off of Tuesday’s risk appetite. The index recovered as US data continues to vex financial markets that remain overwhelmingly focused on rate cuts from the US Fed.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
Discover how to make money in forex is easy if you know how the bankers trade!
5 Forex News Events You Need To Know
In the fast moving world of currency markets, it is extremely important for new traders to know the list of important forex news...
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and...
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.