Forex risk

Forex risk management strategies

The Forex market behaves differently from other markets. The speed, volatility, and enormous size of the Forex market are unlike anything else in the financial world. Beware: the Forex market cannot be controlled - no single event, individual, or factor rules it. As such, it is the closest market to what economists call “a perfect market”! However, just like any other speculative business, increased risk entails chances for a higher profits as well as higher losses.

Currency markets are highly speculative and volatile in nature.

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.

Truly ask yourself: "How much am I ready to lose?"

When you terminated, closed or exited your position, had you understood the risks and taken steps to avoid them?

Some foreign exchange risk management issues

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.

Exit the Forex market at profit targets

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