11 Jul

Is Forex Trading Safe?

Forex trading also referred to as FX uses the change in the exchange rate of various currencies to the trader’s advantage. The forex trading market does not decide a currency’s absolute standing rather it helps determine the standing of one currency concerning another, as said by a finance professor at the Creighton University. In the Forex market, you can take up the position from any currency against any other currency.

For example, you can place a bet on the American dollar against England’s pound or the Japanese yen against the Indian rupee. Most of the trading in the forex market is being carried out by multinationals to hedge natural positions. Individual investors also speculate the movements of varying currencies at times. 

Investing in currencies is different from investing in stocks, bonds, or other such properties. In the long-run investment in the stock market results in profits since its value is bound to increase over time. However, this is not the case with Forex trading since the value of currencies does not necessarily increase over time. 

In the example of the U.S. dollar and England’s pound mentioned above, if the dollar strengthens those holding it would benefit from it whereas the ones holding the pound would lose an equal amount the other wins. 

People who are interested in getting hold of tons of money and that too for longer periods should invest in the stock market rather than this. However, if you do want to get into forex trading you need to get hold of a broker, and that too someone who will keep your interests in view since that is not always the case.

  • Forex Brokers: A Scam?

The nature of forex trading makes it an ideal environment for spoofing, ghosting, front running, and other such acts. Even though the act itself is very legal, there are numerous potential bad actors in this field. As explained by a government investigations attorney named Braden Perry. 

Spoofing and ghosting occur when traders try to manipulate the market by placing huge orders that they do not want to complete to create interest in the position so that others are attracted to it. Front running is an act where a broker who has information about some client who is placing a huge order, places one from his/her end before the client does.

  • Some Common Problems in Forex Trading

With the advent of trading platforms via the internet, the risks involved in forex trading have also increased. It has paved way for easy fraud schemes, overstated rate of returns, and not being able to pay out for wins. Some of the people involved in this have been using software that manipulates the system and aid in the rigging. 

One big challenge with forex trading is that it is not very transparent the regulatory frameworks are unclear and do not provide ample amount of insight. There are certain products available on forex trading platforms having regulatory oversight. Similarly, authentic brokers exist in the market as well, who are doing genuine business.

  • Selecting a Forex Broker

Forex reading becomes relatively safer if you go through proper channels in selecting brokerage firms as explained by the CEO of Tickeron, Sergey Savastiouk. Tickeron is a platform that aids traders in making trading decisions by using market intelligence effectively. 

The CEO suggests the ones looking to invest in forex trading to test the brokers beforehand by taking money in and out to gauge the accessibility of it. He also tells that if the broker is unavailable or you cannot get in touch with any representatives then it’s an alarming situation and shouldn’t be ignored.

The country affiliation and the location of the brokerage firm is again a very important factor to consider. Developed countries have better rules and regulations making the trading process much safer as compared to other countries. For example, if your firm is from the United States or Europe you are likely in safe hands. 

  • Whether Forex Trading is a Safe Investment

Forex trading is less of an investment when you talk about it in comparison to investing in some other side such as in stocks. Usually, investment is low in risk and is held for a long time for it to increase in its value which is not the case in forex trading. Which is usually a high-risk and short-term activity that can be completed merely in minutes or hours. By using an efficient trading strategy, the risk can be minimized but you are putting your money at risk in an investment strategy when you trade forex.

  • Ranks of Brokers

In all sorts of investments, some form of risk is present however, in the case of forex trading the risk is significantly higher than the expected return. The risk factor is high in this case since numerous external global factors influence forex trading. The technical reasons impacting the value of a currency can be evaluated by a human being. Certain external events such as political activities or climatic changes can cause untimely changes that are difficult to forecast making the entire process a risky one. This can also alter the regulations that apply to your trade.

A good trader thoroughly studies the events listed on forex websites and evaluates the news carefully as well. Despite this, a chance of error exists since not all events can be predicted. Traders try to mitigate the risk factor when they are putting their money up in the forex market. 

Such traders look for patterns in trading to be able to better comprehend the market. Technical trading involves spotting patterns and orderly trading, which is the form of trading where external events do not impact the outcome. Hence it makes forex trading safe for well-informed and disciplined traders since they know about what they are doing whereas risky for the others.

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