Forex Market Spikes: How to Keep Your Investments Safe

Investing money in the global Forex market is becoming more and more popular. The digital revolution in the sector has meant that only a PC, an internet connection and a little starting capital is needed to become involved. That gives people who aren’t professional bankers or fund managers the chance to make some extra money or even to forge a new career. With over $5 trillion made in trades every day, there is certainly money to made in this massive international market.

Although trading in FX is about making money, you should also pay close attention to looking after the money you have to begin with. Protecting your trading account is vital so you do not get wiped out by one bad trade that goes against you. One problem for many traders in this regard can be keeping any money they have invested safe from market spikes.

In simple terms, market spikes in Forex are where the price of a currency pair suddenly moves one way or the other. It can be up or down but will usually see the price travel hundreds or thousands of pips in that direction. The problem comes if you are on the wrong side of the spike – this can see your money disappear in minutes!

So, how can you avoid this happening when trading FX?

Research your trades properly

The main thing to do is to conduct proper analysis and research on any trade before opening it. Do not simply place a trade because someone else has or you have seen it recommended on a website. Proper chart analysis and fundamental research into the market news will help you to spot a pair that has seen major movement recently or may be about to do so. Such research will make it less likely that you will open a trade that could be hit by a price spike.

Set a stop loss

Some FX traders do not use stop losses and it is a wrong approach. Setting them when you open any trade will ensure that it closes automatically when pre-defined price levels are reached. This helps protect your investments from spikes by shutting down the trade if it moves against you and will limit your losses. Operating without a stop loss leaves an investor at the mercy of a sudden market swing and the huge losses it could bring.

Keep an eye on the news

Another way to protect your investment is by keeping up to date on the daily finance news. That will ensure that you see any breaking news or financial reports that could drive a spike in the FX market for a certain pair. With this information, you can then manage any open trades as appropriate to protect the money you have in them. It could mean closing them altogether to avoid the expected spike or setting a new stop loss to help mitigate its effects. Whatever you do, keeping up with the financial news will help you look after any open investments you hold.

Try to trade off longer time frame charts

While shorter time frame charts are useful for certain types of traders like scalpers, they can have lots of spikes in them to deal with. A simple yet effective way to stop your money from being affected by them is to use longer time frame charts. Daily charts, for example, contain much fewer spikes and trading from those means you will have less to contend with. The same is even truer for weekly or monthly charts. As the data shown on the longer time frame ones is over a longer period, it means less noise is present from every spike or move that the market makes.

Find pairs that have a negative correlation

Another great way to stop spikes ruining your investments in FX trades is to choose pairs that have a negative correlation. This basically means that they usually move in the opposite way to each other – so when one goes down, the other would go up. The GBP/USD pair usually moves in the opposite direction to the USD/CHF pair for example. This is great for looking after your investment in each as a big move against you in one is offset by the gain you make in the other.

Money management is key

Hopefully, the above tips have shown you some useful ways to protect your money from market spikes when investing in FX. While spikes will always happen, it does not mean you have to simply suffer their adverse effects if they move against you. By putting some of the above measures in place, you will be taking steps to prevent their worst effects.