Forex is the international wholesale market for currency, where traders can speculate on changing currency prices to increase (or lose) fortunes. Trading round the clock every day, these markets respond to the faintest signal from politicians, central banks and commentators, in an attempt to price-in the true value of each currency they trade.
Recent developments over Brexit, the EU and the election of President Trump have helped foster an environment of heightened uncertainty, which has been great news for forex brokers. This has led to a surge in interest in forex trading, including from those who have opportunistically identified a desire to get involved – a fact that suits brokers, whether their traders win or lose.
But for those choosing to speculate on the markets, is now really the best time? While there are no doubt opportunities for those who can read the markets and predict the future, it’s far from certain that you won’t lose all your money. Indeed, because of the structure of forex trading, you can actually lose significantly more money than you put up to begin with.
As a result, an increasing number of people are now turning their backs on the forex markets, with many preferring instead to opt for a spin on the roulette wheel instead. When you weigh up the pros and cons of a decision either way, this starts to look like an increasingly sensible idea.
Why is Forex So Especially Risky?
Trading in forex is characterised by huge risk – far, far greater than even trading in shares. When you take a position in forex, you have no guarantee you’re going to win. Most traders can accept that as a starting point. But when you factor in the size of the potential losses on the table, plus the downsides that come from trading forex at this especially heightened time of volatility, this can quickly grow to become an unacceptable risk.
When trading forex, you do so on margin. This means that traders only need to stump up a small fraction of each trade, sometimes as low as 5%, in order to take a much larger position. Say you’re trading with £100 – this can allow you to take a position worth £2,000 in the currency markets. If that position moves up 1%, you’ll earn a 1% increase in your £2,000 stake, taking your total equity to £2020. But compared to the original investment of £100, that 1% is actually worth 20% – a much bigger win.
The difference is provided through a mechanism known as leverage, where brokers allow traders to finance positions on margin in this way. While this is great news when things are going your way, it’s equally bad news when the markets take a turn against you. A similar 1% loss in the value of your position will leave you liable for a 20% loss on your original investment, and there is no cap on either the upside or the downside to your exposure.
This problem is only amplified when the markets are uncertain. And if there’s ever been a time of hugely uncertain financial markets, it is surely now. This increases the likelihood of more severe swings in pricing, which in the end means even more risk for ordinary traders who are trying to contend with it.
Dealing with Uncertainty
For forex traders, the problem of risk is only multiplied by uncertain trading conditions. While it might have been difficult and risky to find a profit before in more tranquil markets, those difficulties have only exponentially increased with the twists and turns of global politics. As Trump’s presidency gets underway, the UK’s Brexit negotiations kick off, and the European Union reshapes, the next few years in particular could be set to be amongst some of the bumpiest in history for financial traders.
Dealing with this uncertainty isn’t easy, and so long as a trader is exposed to forex markets, they risk losing it all. More and more traders are now ducking out of the forex markets, favouring other investments for greater security. The FTSE 100 has enjoyed strong trading performance while other markets have been rattled, as has gold – the traditional safe haven for investors in times of uncertain markets.
Others are taking an altogether different approach. While forex and gambling aren’t exactly the same, an increasing number are choosing instead to just put their money on the roulette wheel. While it might sound like a risky alternative, players at least have the advantage of open, clear information on the odds and probability of a return on each spin.
Spin the Roulette Wheel Instead
You won’t find many professional traders happy to admit they are simply gambling on the markets. But for all practical purposes, that’s exactly what they do. While they try to piece together the available information to make their decisions, this is in fact no different than joining a casino and playing online roulette. And in the current climate, having the security that comes from the certainty of roulette, over the uncertainty of financial markets, makes this an increasingly attractive option.
On a 36-number roulette wheel, you’ve got a 1 in 36 chance of landing an exact number, for a 35/1 return on your bet. There are also a number of other combinations and number sequences you can bet on, all with varying probabilities and rates of return. Compare this to trading on a financial market – you don’t know the true probability of a result in your favour, and you certainly don’t know how much you will win or lose with each trade. When you’re playing roulette, you know your maximum losses per spin, and also your maximum win, and the likelihood of landing that winning result.
Of course, you can’t guarantee you’ll win when you’re playing roulette. But at least the information points are fixed and certain. This is making roulette seem like a safe haven, and a certain, if not lower, risk to your capital.
Don’t be sucked into the markets – you could quickly find yourself just another statistic, heavily out of pocket and bitter at the world. Instead, playing roulette, while still risky, offers a more certain assessment of your chances of a return, and the rate of return – information you just can’t buy on the forex markets.