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 weakens to near 1.1900 as traders eye US data
The EUR/USD pair loses ground to around 1.1905, snapping the two-day winning streak during the early European trading hours on Tuesday. Markets might turn cautious ahead of the release of key US economic data, including US employment and inflation reports that were pushed back slightly due to the recently ended four-day government shutdown.
GBP/USD edges lower below 1.3700 on UK political risks, BoE rate cut bets
The GBP/USD pair trades on a weaker note around 1.3685 during the European session on Tuesday. The Pound Sterling edges lower against the US Dollar amid political risk in the United Kingdom and rising expectations of near-term Bank of England rate cuts.
Gold drifts lower as positive risk tone tempers safe-haven demand; downside seems limited
Gold drifts lower during the Asian session on Tuesday and snaps a two-day winning streak, though it lacks strong follow-through selling and shows some resilience below the $5,000 psychological mark amid mixed cues. The outcome of Japan's snap election on Sunday removes political uncertainty, which, along with signs of easing tensions in the Middle East, remains supportive of the upbeat market mood.
Bitcoin Cash trades lower, risks dead-cat bounce amid bearish signals
Bitcoin Cash trades in the red below $522 at the time of writing on Tuesday, after multiple rejections at key resistance. BCH’s derivatives and on-chain indicators point to growing bearish sentiment and raise the risk of a dead-cat bounce toward lower support levels.
Follow the money, what USD/JPY in Tokyo is really telling you
Over the past two Tokyo sessions, this has not been a rate story. Not even close. Interest rate differentials have been spectators, not drivers. What has moved USD/JPY in local hours has been flow and flow alone.
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