Have you asked the question, is the Forex market actually riskier compared to other financial markets out there? The answer is absolutely NOT. The market is full of features that make it safer, reliable, easy to manage compared to other financial markets nowadays.
But saying that, these facts about Forex trading are actually not one-sided. Its downsides are still known but the bigger picture suggests that the Forex market offers more stability and reliability when it comes to managing risks. Let’s see if Forex is a lot riskier than commodities, equities, and futures markets.
The Risky Reputation of the Forex Market
The main reason why critics think that the Forex market is riskier than any other financial markets out there is that it is not centralized.
There is no government authority that handles and regulates the trades. It is freely distributed to the market and the prices could vary from one broker to the other. There is no one who has the authority to manage the Forex market.
Being decentralized, anyone who can provide services or sell systems to investors can enter the market. Back in the days, these unmonitored activities resulted in scams and frauds all over the market. There are even a few brokers who tried to manipulate the prices and non-regulated brokers offer so much risk.
The problem involving brokers has finally been resolved…
But nowadays, this problem has been addressed and almost all brokers are now regulated and follow a strict system. All major regulators are also offering harsh enforcement of protection for traders.
Despite all of these, the bad reputation that this market is not safe for traders and investors still persists. Though there are some times in which brokers go out of funds but nowadays, regulators are making sure that the funds and deposits of investors are well protected.
If you buy from the stock market, you will have a tangible asset. But in the Forex market, you don’t actually take a hold of the asset, you can only hold the contract. This contract, when it is the default, you will lose everything. So choosing a regulated broker is very important. Someone who adheres to the regulation is so much preferable.
Using Leverage Wisely
Another thing in the Forex market that encourages risks is leverage. It is pretty common in the Forex market to give out huge leverage in exchange for the money that the investor will invest. But using too high leverage invites more risks. What’s important here is you understand the 8 major currencies in the Forex market. These currencies remain stable against each other.
Stabilizing Features of the Forex Market
One feature that keeps the market stable is its high liquidity. It is actually the most liquidated market of all. Another feature that keeps the market stable is its continuous Forex trading for 24 hours for 5 straight days. This opens up different opportunities without gaps. Finally, selling short. This is another safety feature that the Forex market offers. This feature is available in several advanced markets. But limits are placed in times of crisis.