Investment and trading advice site Independent Investor has said that forex traders should be wary of the low levels of volatility in forex markets and should expect to engage in transactions with substantial degrees of leverage in order to compensate for the relative stability of currency markets.
Underlying forex markets are more stable than other securities because they are traded in such significant volumes with substantial liquidity and the effect of massive investors like governments and investment institutions. As a result, more generous leverage terms are available in order to artificially amplify volatility in the markets, presenting the various advantages and drawbacks margin trading brings.
This means forex trading can be more risky than other forms of market speculation and puts an even greater premium on research and risk management throughout the trading process, according to IndependentInvestor.com
A spokesperson for IndependentInvestor.com said that the role of substantial degrees of leverage in forex trading was to counteract a general lack of volatility and had the effect of forcing traders to think more defensively when choosing their positions and trades.
“Low volatility would in many cases render a market uninvestable, particularly for short-term traders looking to find quick opportunities in the markets. As a measure of the degree of movement in a market, volatility projects the degree of risk and the degree of potential reward on offer, with low volatility meaning more stable markets and therefore dampened effects. The solution to counteract this effect in forex is leverage, and lots of it, which contributes to make it both a potentially highly lucrative and extremely risky form of financial trading.”
“With substantial degrees of leverage, running frequently into hundreds of percent, traders need to keep a keen eye on their portfolios and the integrity of their trading accounts as they engage with the forex markets, in order to prevent runaway losses and capital damage. With the element of leverage never far from consideration, keeping control of your forex account is essential in order to mitigate for this potentially destructive force.”
About:
IndependentInvestor.com is an online forex resource and financial trading commentator, providing articles, strategies and opinion on forex and market happenings. Designed to help traders from all walks of life improve their effectiveness in financial markets, IndependentInvestor.com provides a plethora of materials for would-be traders to improve their skills and become more familiar with the tactics and techniques of successful forex trading.
Reducing the costs of trading and searching for a better deal is also central to the IndependentInvestor.com ethos, with substantial comparison and review sections dedicated to the leading forex and financial brokers. These comparisons aim to give traders a platform for choosing more effective providers, through shedding light on the different levels of service and pricing structures available.
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