Risks When Trading In Forex

Risk of exchange rate exchange rate risk is a consequence of permanent changes in the markets of the world supply and demand for currency in circulation. An open position is subject to price changes during the time of its existence. The most popular measures of keeping possible losses within reasonable limits are the limiting position (position limit), and limiting losses (loss limit). When the position limitation set maximum volume particular currency, which allows the trader to trade in a given time. Limiting losses – a measure aimed at minimizing losses trader carried out by setting the level of stop-loss at the opening position. Risk interest rate risk is the interest rate associated with losses due to fluctuations in the spreads as well as the presence of windows in interest rates due to different timing of transactions in different countries. Mismatch volumes – is the difference between volumes of spot and forward. To minimize the risk discount rate set limits on the total size of mismatches.

The overall approach is to divide the discrepancy, based on the duration of contracts, to those that relate to contracts with terms of more or less than six months. All discrepancies entered into the computer system to calculate positions on the date of termination of contracts, losses and profits. For predicting any changes that may affect the window situation in discount rates should be constantly monitored. Credit Risk Credit risk is associated with risk of non-contractual obligations to pay foreign exchange exposure due to voluntary or involuntary action second hand. If there is such fear trade is in the form of forced transactions, as all traders agree with Clearing House (clearinghouse). Known forms of credit risk: Risk compensation (Replacement risk), which occurs when a client unsuccessfully working banks are at risk do not receive compensation from the bank at imbalances in personal accounts. Geographical risk, which arises from the different time zones on different continents. For this reason, the currency may be sold to the central banks of different countries different prices in different time of day.

At the beginning of the global trading day are sold Australian and New Zealand dollars, then the Japanese yen, European currencies and the last one – the U.S. dollar. Therefore, for example, can occur prematurely benefit payments party which intends to soon declare bankruptcy or be declared insolvent soon. Credit risk for currencies traded on organized markets, providing credit minimizes clients. Commercial and investment banks, trading companies and bank customers should carefully monitor the financial solvency of their partners. Along with a market value of currency portfolios participants of transactions, in To reduce the risk, should also evaluate their cost. The latter can be accomplished by conducting a probabilistic forecast for the duration of the open positions. Country Risk Country Risk associated with the regular intervention government in the face of the Treasury and credit institutions to the work of trading. Such intervention in foreign exchange transactions is still widespread. Traders should be aware of this and be able to take into account possible administrative restrictions of this kind.