Forex Trading: Rags to Riches, or an Investing Minefield?

By Steven Maxwell

As anyone who has dipped their toes into various investment strategies is probably well aware, it can be far more treacherous than advertised. This is not only true of today’s most talked-about “scams” like those found in the world of cryptocurrency, for example, but also within the halls of the most traditional investments backed by legitimate regulated banks. Even precious metals investing like gold and silver, thought to be among the most pedestrian and conservative of long-term investments, has been plagued with corruption at the highest levels.

So, what is one supposed to think when we are told to believe that Forex trading is a scam? Firstly, it’s always important to separate what is supposed to happen in the world of honest and legal investing vs. what only happens in the high-profile cases of malfeasance. If one looks exclusively at the downside magnified by headlines, one will be left with a tilted view of any investment opportunity.

In order to properly evaluate risk for yourself, it’s important to start with the most basic information and work your way toward more complexity. Although I’m not a licensed investment advisor, I’ve had my fair share of successes and failures in a variety of investment vehicles, both traditional and those considered to be extremely high risk. I’ve found that, above all, developing a “scam detector” is essential as a baseline skill before putting your hard-earned money at risk.

For the uninitiated, forex trading is simply the mechanism by which a trader exchanges one currency for another. If it’s a scam, it’s among the largest known to exist: in 2022 the forex market was estimated to have a daily global volume of $7.5 trillion and it “is the only truly continuous and nonstop trading market in the world.” However, along with the rise of internet access across the planet, barriers to entry have become far lower for potential traders … and, therefore, scammers and pseudo-advisors as well. Promises of untold millions overnight have abounded, just as we see with a range of cryptocurrency projects. This should be the first red flag that gets raised by one’s scam detector. Overnight riches are about as likely as hitting the lottery and should be considered with the same odds in mind.

Products like foreign currencies are by their nature highly speculative, as they are based upon all of the complexities that comprise each nation, politically and economically. The chances of massive swings in value can catch even the most experienced investor or trader off-guard and require a skilled ability to hedge against worst-case scenarios. However, I’d argue that this last admonishment is true of any investing venture, or business venture for that matter.

Those who trade successfully within speculative assets also know that bubbles occur and bubbles inevitably burst. It is next to impossible to time these events (particularly of the Black Swan variety) with any level of certainty. Therefore, in order to mitigate downside risk, it’s important to develop a consistent method of taking profits when they become available during strong upside trends. At the very least, a strategy of dollar-cost averaging (DCA) to the downside of any market can help alleviate losses, while adding to potential future gains as trends reverse.

Risk is inherent in all human activity, most acutely investing. And, let’s face it, just one look at the news cycle lately should tell you that even keeping your dollars in a major international bank contains risk, whether that means outright bank failure, invasions of privacy, exorbitant fees, the declining value of your dollars, or capital controls of every stripe.

I think it is safe to say that neither rags to riches nor a complete minefield is exactly the case with forex, just as it’s not likely with any legitimate investment. Foreign currency exchange is an established global vehicle of trade worthy of your time, attention and as much research as you can conduct in order to satisfy your personal due diligence and exposure to risk. In short, the risk for scams is more likely to come from individuals with malintent rather than from the system itself.

Diversification is something that any accredited investment advisor will stress time and again, and I see no reason why forex trading could not be incorporated into one’s larger strategy for attaining financial independence and freedom once the requisite knowledge and due diligence is employed.

Image: Pixabay