Is Currency Trading Too Volatile To Be Sustainable


Over the years, countless people have debated and argued the value of currency trading. While few question the need for a currency market, “retail” currency trading can prove deceptively alluring. Banks and financial institutions use vast amounts of cash to effect trades with razor-thin profit margins. Critically, large institutions have the resources to withstand the effects of bad trades. Even so, banks overextend themselves and fail on a regular basis. Smaller investors who risk too much can easily lose everything through currency trading.

Still, for every supposedly hard and fast rule of finance one can cite numerous counterexamples. There are indeed more than a handful of small-scale Forex investors who have created personal fortunes through currency trades. Generally, these individuals devote substantial parts of their lifetimes to understanding currencies. The average retail investor may never find the time to really understand Forex like the professionals.

Even during the most optimal times, Forex trading is a risky venture. Despite the best efforts of technocrats like Fed chair Janet Yellen, currency markets still experience regular upheaval. Instability in Ukraine and signs of slowdown in China are working together with ordinary pressures to produce a rapidly changing currency market. When Yellen addressed the Federal Open Market Committee in late March, she set tongues wagging by suggesting that interest rate hikes could begin early next year. Though Yellen presented this tidbit with plenty of disclaimers, people are already recalibrating to keep their portfolios safe. Every time a figure like Yellen speaks up, the Forex market is immediately convulsed with a shock wave of speculative reaction. In China, mere rumors of new government financial policies have hit currency traders hard over the past month. Even compared to uncertain systems like common stock trading, Forex is so volatile it is difficult to fully grasp how many variables can go wrong.

At times like these, even the most experienced traders can’t always gather enough data to make truly informed decisions. For example, Yellen’s recent announcement could mask an agenda of more aggressive rate hikes. On the other hand, Yellen could be serious about letting market conditions dictate the rate of change. With unrest in Venezuala, chaos in Ukraine and a war in Syria that is threatening to spread, world events make this a particularly unstable time to fully embrace Forex. At the same time, those who neglect opportunities for modest diversification might ultimately fall short of their financial goals.

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