For investors with experience and a tolerance for risk, the Forex market is a relatively new and exciting way to make money. Made up of many international currencies, lots on foreign exchange market are traded at an unparalleled high volume over-the-counter. With a multitude of online brokers to choose from and extremely high liquidity, almost anyone with money to invest can enter the Forex market. But the fact that getting into Forex doesn’t necessarily make it safe and profitable. Read on to find out whether the Forex market is a dependable way to make your money grow.

Profitability

As mentioned before, there are two qualities about the Forex market that make it unique: it’s very liquid, and it’s absolutely huge. These facts, combined with a few other economic factors, make currencies very volatile compared to one another. Depending on the expectations and sentiment of the market, currencies can appreciate or depreciate against one another by multiple percentage points in a single day. This means that the potential profitability of a very good Forex trade is quite high.

In addition to volatility, the ability of traders to leverage their accounts by borrowing makes potential profitability many times higher. Most brokers allow their traders to apply a high amount of leverage, buying currencies with mostly borrowed money. Take, for instance, a 10% margin account. If a trader were to buy $1,000 worth of EUR/USD, they would only need $100 in their account to do it. Then, if the market pushed EUR/USD up by just 1% their investment would be worth $1,010. That’s a 10% gain on a 1% price move. Pretty impressive to say the least. As you can see, the ability to use leverage in Forex accounts is a huge determinant of profitability.

Safety

Of course, the high potential profitability of trading in the Forex market comes at a price. That price is high risk. The inherent volatility of the Forex market may increase short term gains, but if a given trade moves in the wrong direction, it can also increase short term losses.

Just as leveraging increases potential profits, it also increases risk. In the previous example, the trader gained 10% on their account from a 1% price move upward. The same magnification on loss would happen in the event of a downward price move, too. In a market volatile enough that full percentage point price moves are far from uncommon, that translates to a lot of risk.

While Forex is inherently risky, a skilled and experienced investor can trade currencies in a relatively safe way with certain strategies. Using tools such as stop-losses and techniques such as risk-hedging trades, an investor who really knows what they’re doing can minimize risk and maximize profitability with a little hard work, dedication, and lots of research. The best way to attain that elusive safety factor is to study the Forex market and practice with a “paper trading” account first. Then, choose a specific, methodical strategy that works – and stick with it. Using controls such as these, Forex traders are able to line up high potential gains with an acceptable level of safety.