Risk aversion in Forex

The foreign exchange market is referred as the largest financial markets worldwide. Due to the huge trading volumes, continuous activity and geographical dispersion, Forex is considered as the market closest to the ideal of perfect competition. The Forex average daily turnover is estimated at around $4 trillion, making it most liquid financial market in the world.

Major Forex traders include large banks, central banks, currency speculators, corporations, governments, and other financial institutions. In the last few years the online Forex trading gain a lot of power due to the increasingly number of traders that use online trading platforms like Etoro and Ava FX. The Forex is now more accessible and anyone can give it a try.

The large number of amateur traders accentuates the risk aversion that already influenced the market occasionally. The risk aversion is a trading behavior that appeares when negative conditions affect the market. If the traders consider that their current assets become too risky, they liquidate their positions and move to more solid assets. Sometimes the decision is based more on sentiments rather than on economic statistics.

That’s the case now, when despite the crisis in the United States, the dollar becomes stronger because many traders lost their confidence in the euro. The Greek crisis affected the eurozone and consequently the euro’s value. The dollar was for a long time the most trusted currency on the market. When the US faced the economic crisis, the euro gained more power, reaching a 1,6 exchange rate against the dollar. Now, the euro crisis made the dollar stronger again and the exchange rate went down to 1,22 dollars for one euro.