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.
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.
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.
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.
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.
Editors’ Picks
EUR/USD extends its optimism past 1.1900
EUR/USD retains a firm underlying bid, surpassing the 1.1900 mark as the NA session draws to a close on Monday. The pair’s persistent uptrend comes as the US Dollar remains on the defensive, with traders staying cautious ahead of upcoming US NFP prints and CPI data.
GBP/USD hits three-day peaks, targets 1.3700
GBP/USD is clocking decent gains at the start of the week, advancing to three-day highs near 1.3670 and building on Friday’s solid performance. The better tone in the British Pound comes on the back of the intense sekk-off in the Greenback and despite re-emerging signs of a fresh government crisis in the UK.
USD/JPY bounces off lows, back above 156.00
USD/JPY is starting the week markedly on the defensive, sliding back toward the 155.50 area where it has met some decent contention for now. The move lower in spot follows FX intervention chatter after PM S. Takaichi scored a landslide win in Sunday’s election..
Editors’ Picks
AUD/USD gets ready to punch through 0.7100
The intense sell-off in the Greenback underpins the solid performance of the Aussie Dollar on Monday, motivating AUD/USD to add to recent gains while challenging the key 0.7100 barrier, or fresh YTD highs, at the same time.
EUR/USD extends its optimism past 1.1900
EUR/USD retains a firm underlying bid, surpassing the 1.1900 mark as the NA session draws to a close on Monday. The pair’s persistent uptrend comes as the US Dollar remains on the defensive, with traders staying cautious ahead of upcoming US NFP prints and CPI data.
Gold picks up pace, retargets $5,100
Gold gathers fresh steam, challenging daily highs en route to the $5,100 mark per troy ounce in the latter part of Monday’s session. The precious metal finds support from fresh signs of continued buying by the PBoC, while expectations that the Fed could lean more dovish also collaborate with the uptick.
Litecoin eyes $50 as heavy losses weigh on investors
Following a strong downtrend across the crypto market over the past week, Litecoin holders are under immense pressure. The Bitcoin fork has trimmed about $1.81 billion from its market capitalization since the beginning of the year, sending it below the top 20 cryptos by market cap.
Japanese PM Takaichi nabs unprecedented victory – US data eyed this week
I do not think I would be exaggerating to say that Japanese Prime Minister Sanae Takaichi’s snap general election gamble paid off over the weekend – and then some. This secured the Liberal Democratic Party (LDP) an unprecedented mandate just three months into her tenure.
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