Introduction to Risk Management
Proper foreign exchange risk management and hedging currency risk is essential when trading forex. Highly leveraged forex trading can lead to exponentially large gains or exponentially large losses. We want our clients to be successful and we have taken the time to make as much forex information available online as possible including foreign exchange risk management. Proper currency risk management starts with a general understanding of the :
Thespeed, volatility, and enormous size of the Forex market are unlike anything else in the financial world.
The Forex market behaves differently from other markets. Any currency can become very expensive or very cheap in relation to any or all other currencies in a matter of days, hours, or sometimes, in minutes.
The unpredictable nature of currencies is what attracts an investor to trade and invest in this market.
Beware: the Forex market cannot be controlled - no single event, individual, or factor rules it. However, just like any other speculative business, increased risk entails chances for a higher profits as well as higher losses.
Forex Risk Management Strategies
When you terminated, closed or exited your position, had you understood the risks and taken steps to avoid them?
Truly ask yourself: “How much am I ready to lose?”
The following may come up in your day-to-day foreign exchange transactions.
- Unexpected corrections in currency exchange rates
- Wild variations in foreign exchange rates
- Volatile markets offering profit opportunities
- Lost payments
- Delayed confirmation of payments and receivables
- Divergence between bank drafts received and the contract price
These are issues every trader should cover, both before and during a trade.
Limit orders, also known as Take-Profit orders, allow Forex traders to exit the Forex market at pre-determined profit targets. If you are short (sold) a currency pair, the system will only allow you to place a limit order below the current market price, because this is the profit zone. Similarly, if you are long (bought) the currency pair, the system will only allow you to place a limit order above the current market price. Take-Profit orders help create a disciplined trading methodology and make it possible for traders to walk away from the computer without continuously monitoring the market.
Forex Risk Management Tools
Traders must have a working knowledge of currency risk management tools available to each and every ANG Markets client. First, learn how to properly manage forex market risk utilizing different order types such as stop and limit orders to protect yourself against adverse foreign exchange price moves. Learning to use the orders in combination can improve your foreign exchange trading technique by allowing you to realize maximum profit potential while, at the same time, limiting your potential losses. Our order types page also includes examples of how and when to properly utilize numerous types of stop and limit orders, including OCO orders, that are an integral part of forex risk management.
The online forex trading platforms offered through ANG Markets allow you the flexibility to enter a wide variety of order types including orders that will help you manage currency risk:
- Limit Orders
It is a n order to buy or sell a currency pair, which is executed when the price is breached. For example, you place an order to buy 100,000 euro at 1.4520. The platform will automatically fill your order when the offer reaches 1.4520. Limit orders can be placed to both buy and sell.
- Stop Orders
A stop order is a type of limit order that is placed to “lock in” a specified gain or loss, closing the position. Typically a risk management order used by clients to help manage their market exposure, this type of order can also be used to enter into a new position. Stop orders can be used to both buy and sell foreign currency contracts.
Once you are ready for forex trading, feel free to open a free demo account and try our online forex trading platform before opening a live forex trading account - you will be supplied with virtual money to test your foreign currency trading strategies risk-free.