Veteran and amateur traders need to understand the risk management methods of the foreign exchange if they hope in the long term to have any chance of financial success.
Unfortunately, many merchants do not even think about foreign exchange risk management. Or if they are, they only think of market risk. Serious traders understand that there are at least 5 kinds of risks for forex trading, and market risk is only a small one.
In this article we can learn about the risks involved in dealing with forex markets and how to reduce or even eliminate exposure.
Please do not consider this as an exhaustive list or a deterrent to trade, but only to help expand your foreign currency risk awareness and prepare you for a long-term, lucrative run as a forex trader.
The 5 Most Important Risks for Forex and how they handle them Broker Risk: There is always a chance or else they meet with his death.
Experienced traders remember the 2005 Refco flasco, where one of the biggest and most respected brokerage firms in the forex markets went bankrupt. Its effect is still felt today.
Make sure you care about broker selection.
# 2 Technical Risks: There is no doubt that computers, power or Internet issues can severely damage the results in markets. In commerce, which sometimes needs to be done at the exact times, and the Murphy Act with full effect, you will always have to prepare for the worst when it comes to technology.
We strongly advise you to save your computers daily, preferably at a location where you can back up your fire or theft. Traders who are serious about marketplaces or have significant portfolios need to invest in fault-free security systems, including generators and surge protectors.
You may seem to be exaggerating now, but you can only save the skin in an emergency. # 3. Market Risk: This is the only way foreign exchange risk management most traders think – how they affect day-to-day fluctuations in foreign exchange rates.
The safest way to alleviate market risks is to trade by using a proven trading system that integrates foreign exchange risk management strategies in a basic manner.
This includes entry and exit points, profit targets, and loss of earnings.
# 4. Economic and political risks: Political policy changes, key economic emerging and government interventions can all affect the country's currency value.
Avoiding this type of risk by using a trading plan that integrates solid foreign exchange risk management methods and identifies the issues before it affects your position.
# 5 Country-specific risk: Finally, it is a country-specific risk – the risk of a country that does not meet its financial commitments.
If that happens, the effects will calm down on all the other financial assets in the country and in other countries where there is business relationship.
These risks can only be avoided by trading the most important currencies and may be left out of emerging markets and countries with severe financial shortages.
As you can see, there are more risks than forex than market risks. Every broker, technology, market, economic and country risk must be taken into account and mitigated.
Fortunately, many existing trading systems incorporate foreign exchange risk management strategies that handle and eliminate many risks.
However, even the most trusted foreign exchange risk management strategies are still not perfect and there will always be risks during trading. Always use your best opinion of risk tolerance levels and never trade over your head.
Source by sbobet