How to Safely Trade Forex with Leverage: Practical Tips and Common Pitfalls

25 September 2025

Safe-haven currency becomes a popular topic of news about financial markets whenever there are market crashes or economic crises. The reason is, these currencies are considered the most stable in a volatile market, and many investors try to protect their capital by moving their money from their current portfolios to safe-haven assets to ensure their money maintains stability. Because of this, it is crucial for anyone interested in FX trading or currency investing to understand what safe-haven currencies are and how to adjust their portfolio so that it is less exposed to volatile assets during crises.
Safe-haven currencies are especially important during volatile markets because they can save you from large losses and ensure you survive the crises and stay in the investing and trading game in the long run. Since the primary goal of every forex trader is to maintain capital and survive in the long term, these currencies become even more crucial to understand and employ in your investment and trading strategies.
In this comprehensive guide, we will discuss the safe haven currencies importance, and how you can apply this knowledge in actual Forex trading strategies to ensure crises and crashes pose much lower risks than for average traders.

What are safe haven currencies?

A safe haven currency is a currency that can maintain its value stability when global markets are in crisis. These currencies have a huge demand when investors try to reduce exposure to riskier assets during volatile times. If we examine historical data, the concept of a safe haven is an old idea. Back then, gold and precious metals were used to preserve their value in times of war and economic collapse, which created a perception about their infallible status. As a result, these currencies gained a reputation as a stable store of value during hard times.

Safe haven currency examples

Among the foreign exchange currencies, three currencies are known for their resilience and stability when crises arrive:

US dollar (USd) - The world’s reserve currency is unsurprisingly also a safe haven currency because it is much more stable than 99% of other currencies. It is backed by deep liquidity, and many large and trusted institutions and countries are holding their reserves in dollars, making it the backbone of the modern financial world. As a result, the trust and confidence make the dollar a go-to currency when times get troublesome in financial markets.
Japanese Yen (JPY) - Long considered a refuge because of its resilience, supported by Japan’s trade surplus and historical low-interest-rate environment. Japan’s economy is very advanced, and Tokyo is a major Forex hub, ensuring the stability of the JPY during crises and crashes.
Swiss Franc (CHF) - The main reason why CHF is considered a safe currency is Switzerland’s financial stability and its long-held neutrality, making it a country home to major reserves for wealthy individuals.

These currencies are nowadays key tools for traders and investors to hedge against market instability and crises. For example, if your country experiences an economic crisis or a market crash, the chances are high that none of those three currencies will be affected, making them effective in maintaining the value of your portfolio and capital.

Safe haven currencies importance for traders and investors

Safe haven currencies are like shelters during the storm. When stock markets fall, bond yields drop, and geopolitical risks spike, investors immediately start working to limit their losses, and the best way to achieve this is to move capital from existing portfolios into stable currencies.

This phenomenon often acts as a self-fulfilling prophecy, as many investors start to pump their capital into safe-haven currencies, and the value of them solidifies even further. These rallies often occur in dollar, yen, and Franc pairs.

Traders versus investors - How they react

For traders, these currencies offer clear short-term trading opportunities when major news events occur. If you know there is a rising risk or stock markets start to crash, the obvious answer is that the dollar will most likely rise due to all the capital inflow from investors. Surely, this is not guaranteed, and if the crisis is major, the currency will also feel it, but overall, the value should pump. As a result, traders often anticipate these rallies and use safe haven currencies in FX trading to generate profits from high-probability setups. For investors, on the other hand, safe currencies are effective tools to stabilize their portfolio. Gains in safe haven assets are often used to counter losses in riskier assets.

Safe-haven currencies in risk management

In risk management, their importance is enormous in capital preservation. Even if returns are tiny, the priority here is to limit drawdowns, ensuring losses do not outweigh the returns. Maintaining a low drawdown is one of the main reasons why successful investors generate consistent profits in the long term. Holding or hedging with safe-haven currencies can mean the difference between a controlled loss and a portfolio ruin during crisis periods.

Safe-haven currencies and their unique characteristics

There are a few major safe-haven currencies, as we have mentioned. USD, CHF, and JPY are major currencies often used to hedge against major economic risks. However, there are also secondary safe havens like SGD, NOK, and Gold.

US Dollar (USD)

As the dominant reserve currency in the world, the USD offers deep liquidity and is supported by the US Treasury as a global benchmark. It is also closely tied to the US stock markets in negative correlation, meaning when stocks rise, the dollar tends to fall and vice versa. This is because, when inflation rises, it boosts stock markets in the short term while making the dollar weaker.

Swiss Franc (CHF)

CHF is very stable, and it is backed by the strong banking sector of Switzerland. It also has a reputation of being a safe-haven currency, which attracts investors in times of crises.

Japanese Yen (JPY)

JPY has frequently shown resilience as its strengths during global turmoil due to the unwinding of carry trades. Japan has large foreign reserves as well, which support the JPY.

Secondary Safe Havens

Among secondary safe haven currencies Singapore Dollar (SGD) takes the first place. SGD is supported by strong fiscal policies and monetary management. The country is also a popular investor destination, and many headquarters are located there, making its currency stable. Norwegian Krone (NOK) is linked to Norway’s oil and low debt levels, making it stable during major crises and turmoil. While not a currency, Gold is a traditional, well-respected store of value and often trades in correlation with CHF and JPY. Gold has been in an uptrend for decades, which solidifies its status as a safe-haven asset.

How to use safe haven currencies in FX trading

Safe haven currencies usually react strongly to risk sentiment. When markets are in panic mode, pairs like USD/JPY and USD/CHF tend to fall. What traders do during this time is to exploit these scenarios by:

Buying JPY or CHF against currencies like AUD (Australian dollar), NZD (New Zealand dollar), and emerging market currencies when global risks rise.
They monitor the correlations with equities (S&P 500) or bonds. As stocks fall, safe-haven assets tend to rise and gain value.
Some traders even go as far as to trade around key events like central bank decisions, wars, and recessions. However, it is very risky as volatile markets can easily move past your stop-loss, making tight risk control and position sizing critical to survive.

Another prominent approach is to reduce exposure to riskier assets by closing open positions in emerging market currency pairs and investing money in safe-haven currencies instead. This trading method of trading around important news events is often called news trading, and it can only be implemented profitably after comprehensive backtesting and demo trading, and is not recommended for beginners.

Trade safe haven currencies - Practical techniques and pro tips

There are many techniques to trade safe haven currencies during crises, and the main requirements are to time your entries precisely, which can only be possible by understanding the market sentiment through thorough fundamental and technical analysis.

Technical + fundamental - Combining both for precision

While fundamentals offer the main guidance for major trends during major risks, technical levels still matter. After analyzing fundamentals and finding out if the markets might go into panic or rally, watching key support and resistance zones on charts is necessary to better time your entries. Pairing support and resistance level analysis with major fundamental data such as central bank announcements, economic data, and geopolitical headlines gives much more accurate predictions than solely relying on fundamentals or technicals alone. Among the central bank announcements, traders and investors need to follow the Fed (Federal Reserve of the USA), BOJ (Bank of Japan), and the Swiss National Bank (SNB) news and important information updates. From macroeconomic data, Non-farm payrolls, other employment rate releases, CPI, GDP, and others are crucial. Geopolitical events like wars, sanctions, global financial crises, elections, and others are crucial for volatility.

Entry and exit strategies

Seasoned traders never try to guess what markets will do. They anticipate it and wait for confirmation signals, like from VIX volatility index spikes, sharp S&P 500 sell-offs, and bond yields falling to confirm something major is going on to initialize their positions. Once the move is confirmed, safe-haven currencies like JPY and CHF usually strengthen, making pairs like USD/JPY, AUD/JPY, and EUR/CHF attractive for many trading opportunities.

News trading safe haven pairs

To safely trade safe haven currencies, it is essential to properly time entries and use proper position sizing. This is to avoid overexposure to volatile markets. Even safe-haven currencies become volatile when major events occur, and many investors try to readjust their portfolios in an effort to reduce risks and protect their capital using safe-haven assets.

Safe Haven Currencies Importance - Famous examples

We can not discuss safe haven currencies importance without mentioning famous examples where safe haven currencies proved their value in actual market environments.

Global Financial Crisis (2008)

Japanese yen surged as carry trades were unloaded. USD/JPY fell from above 120 to near 87 within months, and whoever got lucky to be on the short side of the pair got huge profits while almost the whole world went into chaos.

Brexit Referendum (2016)

When the United Kingdom voted to leave the European Union in 201, GBP crashed almost immediately and CHF strengthened because investors were trying to redirect their capital from GBP to safe have CHF, which pushed EUR/CHF much lower.

COVID-19 Pandemic (March 2020)

AUD/JPY collapsed because of global panic. The panic caused major crashes and made safe havens move to hundreds of pips, which would be a lifetime opportunity to sell the pair early and capture a home run move.

Russian aggression against Ukraine(2022)

In February 2022, CHF and USD strengthened sharply because of the Russian invasion of Ukraine. EUR and emerging market currencies fell quickly while safe havens gained strength. Since Europe was heavily vulnerable to Russian energy commodities, its currency felt the pressure right away.

Safe currencies Forex hedging strategies simplified

Hedging is one of the most powerful strategies employed by seasoned professionals to mitigate risks when markets briefly move against their portfolios. Hedging with safe-haven currencies greatly aids in offsetting losses in riskier positions. The core idea is very simple: when riskier assets like emerging market currencies or stocks tank the hit, you take an opposite position in safe-haven currency to reduce losses by generating profits from the opposite trade.

safe haven currency hedging in practice

Emerging or EM currencies like the Peso are usually more unstable than safe haven currencies, which are advanced economies. If you are holding an investment in the Mexican Peso (MXN) and the global markets panic, MXN can often fall sharply. To counter this and protect your capital, you can buy USD/MXN (betting on USD rising vs MXN). If the Peso drops further, you generate gains and can mitigate the losses from the primary investment.

If most of your assets are in euros and you fear it could weaken because of the EU recession, you could buy the CHF as it tends to stay strong in crises. So, if the euro falls, CHF positions will make the impact much softer.

Another method, which is also an advanced technique, is to use a cross-hedging tactic with futures or options. When a company expects payments in Japanese yen, it can use currency futures to lock in today’s exchange rates for a future date. If JPY becomes stronger, profits won’t shrink when converted back to their home currency.

Safe haven currency hedging for portfolio risk management

Hedging is used in many different asset classes apart from FX markets, because it is based on a universal mathematical formula that works everywhere. Safe-haven currencies can be used to protect stock or commodity portfolios. Stock traders counter rising equity risks by holding CHF or JPY positions as a counterbalance. Another instance of successful safe currencies Forex hedging tactics is when global funds use USd-denominated assets to keep exposure low when Forex markets fluctuate too much.

Retail traders can also use small positions in safe-haven pairs to maintain insurance against major news shocks in the markets.

Risks of trading safe haven currencies

Depending on the market conditions, safe-haven currency trading can be risky. When markets become very volatile, they can move several hundred pips in mere minutes and hours, and it becomes very difficult to react in time. Another challenge here is that fast-moving markets tend to swing in both directions wildly, which can easily hit your stop-loss. As a result, reducing position size and widening stop-loss is the only way to stay in open positions and generate profits during crisis markets.

Not all crises trigger demand for safe-haven currencies, and some markets just stabilize without any outflow to safe havens, which makes it difficult to generate profits from safe-haven currencies.

The only way to ensure your portfolio stays strong is to exercise strict risk management techniques like using stop-loss orders and avoiding risking too much on any single trade.

Will safe-haven currencies still be reliable in the future?

The future of safe haven currencies will evolve. Cryptos like BTC are often seen as digital safe haven assets. Many modern investors are trying to invest some portion of their portfolio in BTC during crises. However, since cryptos are super volatile, it is still early to consider cryptos as safe havens.

Geopolitical rearrangements like rising US debt levels and global multipolarity can shift which currencies are considered safe, but USD, CHF, and JPY are likely to remain critical risk management tools for years to come.