Is Forex a Safe Investment?
No matter what you might have been told, there is no such thing as a safe investment. By their very nature, all investments are prone to risk, and it is almost always a case of weighing up the degree of risk versus the reward rather than looking for something ‘safe’.
Forex is exactly the same, in that it can be extremely risky, though the rewards can be high. The difference between forex and various other investment options however, is that the trading of currency affords you a certain degree of control. Unlike investing directly in a business, leaving your money in a bank or with an investment company, forex is something that you’re in charge of. In essence, it’s as safe as you want to make it.
Risk Mitigation
When you trade currencies, you’re the one who decides where to put your money and why, using news, announcements and chart patterns to inform your decision. Markets can be volatile, and if you don’t do your research, you can lose a lot of money in a short space of time. On the other hand, you can use what you know, in combination with a variety of tools, to help you mitigate risk.
Another thing to consider is the different ways that you can trade. Forex is actually quite a broad term, and there is no single way in which investors gain from rising and falling prices. To say that all forex is risky would be ignoring the diversity it offers.
The most basic and straightforward method of trading is to simply buy a particular amount of currency with another one. You can also use what’s called leverage, which is where you deposit a particular amount of money, but then this is scaled up by your broker, meaning you can command a much larger position. This does of course add to the risk, as you can end up losing more than you actually committed in the first place.
Spread betting is one of the more interesting methods of trading forex. You wager money for every pip (0.01) of a currency that increases or decreases, which means that it can be extremely risky – large changes can happen very swiftly. The counter is that you can wager very small amounts of money.
If you’re looking for a hands-on investment that offers high rewards, then forex may be for you, but you should always bear risk in mind.
