Forex and risk aversion are incompatible in many ways, as forex trading is, by its very nature, a risky business. Nevertheless, you can still trade in the foreign exchange markets even if you are naturally risk-averse. The key to success is having a reliable strategy.
The forex market is one of the most volatile. It is also the largest financial market in the world, with around $1.5 trillion traded each day. Our increasing reliance on technology has made forex trading accessible to everyone. To become a forex trader, all you need is an account with a forex broker South Africa. Trades can be conducted online via a trading platform interface, or even on an app. The downside to this accessibility is that a rise in the number of inexperienced investors increases market volatility. And when investors panic sell, price movements are often extreme.
The good news for risk-averse investors is that you can maximize your gains by keeping your head while everyone around you loses theirs. So, the first – and most important – strategy for a risk-averse trader is not to panic, even if the price of your chosen currency pair is sinking like a proverbial stone. What many people forget in the midst of a market collapse is that once the majority of investors have finished dumping their positions, the market will invariably recover. If you buy when the market is in freefall, you could make a decent profit when it recovers.
Become a Knowledgeable Investor
The next strategy is to make economic and political news your business. The foreign currency markets are directly influenced by politics and economics. If the Federal Reserve announces that interest rates are going to rise, it impacts on the USD. If a snap election is called in the UK, you can expect the GBP to plummet. None of these events happen in isolation. There are always portents signaling what is to come.
Keep a close eye on economic calendars and political news. Learn how the markets react to news and get a feel for how currencies behave when certain trigger events happen. You won’t always get it right but understanding how the market works is less risky than taking a wild guess.
Learn from the Experts
There are plenty of experienced forex investors willing to impart their knowledge to the masses. Books have been written on the subject and the internet is populated with blogs penned by experienced traders. Research different strategies and get a feel for how other people trade in the forex markets. Their strategies might not work for you, but it is a good place to start.
Try a social trading platform such as eToro. This allows you to replicate an experienced trader’s activity, so you learn from them and their strategies. It’s a useful place to start if you have very little practical experience.
Lastly, if you are extremely risk-averse, begin trading using a demo account, so you can test your theories without losing any money. If you subsequently decide forex trading is not for you, your bank account won’t be hit where it hurts.
Forex trading is a risky business, but it is up to you to decide how much risk you are comfortable with. Have a strategy and stick to it. Set limits on your account and don’t chase your losses. Good investors always know when to quit.