| Veteran and amateur traders alike must understand | | | | It might seem like overkill now but may just save |
| foreign exchange risk management methods if they | | | | your skin in an emergency. |
| hope to have any chance of financial success in the | | | | #3. Market Risk: This is the only type of foreign |
| long run. | | | | exchange risk management most traders think about |
| Unfortunately, many traders do not think about | | | | -- how daily fluctuations of currency values affect |
| foreign exchange risk management at all. Or if they | | | | our positions. |
| do, they only think about market risk. Serious traders | | | | The most sure-fire way to alleviate market risk is to |
| understand there are at least 5 types of risk | | | | trade using a proven trading system that integrates |
| associated with trading forex, and market risk is only | | | | foreign exchange risk management strategies at the |
| one small one. | | | | base level. |
| In this article we'll explore the 5 different types of | | | | This includes having set entry and exit points, profit |
| risk you're exposed to when trading the forex | | | | targets, and stop losses. |
| markets, and ways you can lessen, or even eliminate, | | | | #4. Economic and Political Risks: Political policy |
| your exposure. | | | | changes, major economic emergencies and governing |
| Please do not take this as an exhaustive list, nor as a | | | | authority intervention can all have an impact on a |
| deterrent to trading, it is only meant to help expand | | | | country's currency value. |
| your awareness of foreign exchange risk | | | | You can avoid these type of risks by using a trading |
| management and prepare you for a long term, | | | | plan that integrates solid foreign exchange risk |
| profitable run as a forex trader. | | | | management methods and identifies issues before |
| The 5 Major Risks in Forex and How To Manage | | | | they impact your positions. |
| Them | | | | #5 Country Specific Risk: Last of all we have country |
| #1. Broker Risk: There is always a small chance that | | | | specific risk -- the risk of a country defaulting on it's |
| your broker will go bankrupt or otherwise meet their | | | | financial commitments. |
| demise. | | | | When this happens the effects trickle down to all |
| Experienced traders might remember the 2005 Refco | | | | other financial instruments in the country and the |
| fiasco where one of the largest and most respected | | | | other countries it's doing business with. |
| brokerage firms in the forex markets went bankrupt. | | | | You can avoid these risk by trading only the major |
| The effects of this are still being felt today. | | | | currencies and staying clear of emerging markets and |
| Be sure you do your due diligence when selecting a | | | | countries with serious financial deficits. |
| broker. | | | | As you can see, there are many more risks involved |
| #2 Tech Risks: There's no doubt that computer, | | | | with forex than just market risk. Broker, technology, |
| power or Internet issues could seriously dampen your | | | | market, economic and country risk must all be taken |
| results in the markets. With trades sometimes | | | | into account and mitigated. |
| needing to be made at precise times, and Murphy's | | | | Luckily, many existing trading systems have in-built |
| law in full effect, you should always prepare for the | | | | foreign exchange risk management strategies to deal |
| worst when it comes to technology. | | | | with, and eliminate, many of these risks. |
| I strongly suggest you backup your computer on a | | | | However, even the most sound foreign currency risk |
| daily basis, preferably to an off-site location you can | | | | management strategies are still not perfect, and |
| backup from in case of fire or theft. Traders with | | | | there will always be some risk involved when trading. |
| serious commitment to the markets, or sizable | | | | Always use your own best judgment about your risk |
| portfolios, should invest in fail-safe backup systems | | | | tolerance levels and never trade above your head. |
| including generators and surge protectors. | | | | |