Forex: an attractive but dangerous market

The Forex, Foreign exchange market, is an online foreign exchange market on which investors go, without intermediaries, to exchange currencies. Faced with the popularity of this market, the AMF (Financial Markets Authority) sounded the alarm. Many individuals invest in this particularly attractive market, without measuring the dangers. And yet they are there.

The reasons for the attraction of Forex

If Forex is so popular, it is because it presents, a priori, many advantages.

Simplified transactions

Forex is the most important market. You will therefore have no difficulty in exchanging your currencies on this market. Moreover, these exchanges can take place at any time of day or night. Unlike stock markets, the Forex market does not close on weekdays. However, only institutions have access to it on weekends. Finally, the execution of orders (the instruction to buy or sell the currency) is very fast.

Reduced transaction costs

The Forex market offers low transaction costs. Transaction costs are generally limited to the spread, which is the difference between the ask price and the bid price. It is this difference that remunerates the broker or the bank which, in the case of Forex, does not take commissions on transactions. There are also no custody fees or transaction taxes, which only apply to stock markets.

Multiple trends

The Forex market is characterized by the multiplicity of its trends. Each currency follows its own course, unlike the stock market which, in the event of a crisis, sees all its shares fall irretrievably. Added to this is the fact that you can trade up or down depending on the market for each currency.

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All of these elements make it an attractive market for beginners. But is it safe?

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Why is the Forex market dangerous?

Like any financial investment, Forex can be dangerous.

Significant leverage…

Leverage is a financial technique whose purpose is to multiply profits but also losses. Concretely, this allows you to speculate with more money than you have, in order to make the potential profits more interesting. The leverage effect is made necessary on the Forex market due to small variations in the price of currencies. If this leverage effect promises significant gains with a low investment, it increases the risk of financial loss in return. If you decide to get into forex, it is essential to provide yourself with a forex trader’s chart in order to have a quick overview of the evolution of the world currency market.

…which generates even greater losses

Following a study carried out over the 2009/2012 period, the AMF estimates that 90% of individual Forex investors have lost money on legal online platforms. The average amount of losses per investor amounts to €10,900, ie a total amount of net losses of €161 million. Even when investors go through legal platforms, they are likely to lose a lot of money. There are also many fraudulent platforms.

A market victim of its own success

The popularity of Forex makes its investors more susceptible to scams. There are many advertisements on the internet, promoting fraudulent online platforms for investing in Forex. These platforms, in addition to promising you quick and large gains, can be dangerous. They encourage you to invest your savings in order to recover your bet. If luckily, you have made a profit, it will be the obstacle course to recover it. In a word: caution!

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Read also: How to buy stocks on the stock market?

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