The different types of risk in Forex Trading
There are two basic classifications risk: systematic risk - a risk that affects all currency pairs. Examples of systematic risk are global political events, natural disasters or war. Unsystematic risk - sometimes referred to as "specific risk". It only affects a very small number of currencies and currency pairs. One example is the economic news, the influence in a particular country or region, such as a sudden strike by employees or a change in interest rate. Diversification across multiple non-communication with each other standing in currency pairs is the only way to really protect themselves from this danger.Now that we have considered the two main risk classifications closer, let's look at several types of specific risk.* Risk of default - this is the risk that the firm with which they trade currencies, is unable to pay the balance, if you want his money back. Many Forex traders remember the event at Refco in the spring of 2005. One of the largest brokerage firms in the world went bankrupt. Parts of the company were auctioned or sold. Unfortunately, the customers were not able to deduct their profits to the brokerages were sold. Choosing a trustworthy broker is better than most.
* Country risk - this refers to the fact that not one country does not fulfill its financial obligations. If this happens, it may harm the values of all other investment vehicles in this country. These are countries. affected pulled, which have strong economic ties with that country. Country risk also applies stocks, bonds, options, futures. But worst hit are the currency, issued by that particular country. This type of risk is often seen in developing countries or in countries that have a strong deficit.
* Exchange rate risk - if you are positioned in a foreign currency should also be observed in other currencies that are closely associated with their economic data, for example, affect the British pound, also have an effect on trade of the euro. If the pound adversely affected, one sees losses against the U.S. dollar, the euro will also be negatively affected. Maybe not to the same extent, but one thing is certain: he will not rise. Have to know what effect the currency pairs with each other, which you are trading is vital to the long-term success.
* Interest rate risk - changes in interest rates during all open trades affect the amount you get paid per day or is close to the trade. In an open position until the following day, every day there is a rollover, where depending on the position of a credit or debit on the account gets. This depends on the rate of the two countries currencies. If you sell the currency with the higher interest rate, you get charged the daily interest that has calculated the broker. Have you bought the other hand, however, that currency, interest rates are available these days and you get a credit.
* Political / economic risk - this is the danger when government changes, revolutions make it necessary to re-assess a country if it is as fast possible. Since this is generally not the case, it causes immediate and drastic changes in currency rates where this country is one thing. Another example of this risk, government intervention, which we usually see in Japan. There is attempting to provide low currency prices to resort to export under the arms.* Market risk - the most trusted and the only danger of short-term traders. Market risk refers to the daily fluctuations in the price of a currency pair. Also referred to as volatility, an effect of certain market forces. It is a measure for the risk of each position is exposed. Because fluctuations are the reason that everyone has the opportunity to make money, the greatest possible volatility is important for this opportunity. The more stable a currency is, the stronger the movement in any direction.
* Technology-risk - now they ask yourself, what does this mean? It will only be traded online, according to a working system is essential for survival. What do you do when the online connection fails? Do you have an alternative Internet service? A second PC is present if the first fails?Is the phone number in the vicinity, to close the position quickly? If Yes, you can get by at all?
* Risk of misusing - here they are the source of errors. Have you ever opened a position and were right, your balance has been reduced but always? then you simply have the wrong key. They were distracted, were nervous, were not looking and then something like this happens. They wanted the market quickly, because there was a rapid movement, which was run on and they did not want to look after. It happens to everyone, it happens the best, it happened even at a public event. Aschaffenburg is held every year in an event, act live on stage at the commuters. They wanted to close a position and it has doubled instead. It would have been sold at the top - that was one day gone the long and has realized it too late.It went down and made a profit of 200 €, 50 € for the day lost in this one position. So it can go, it will always come back so if you're not careful. It is hoped that the market comes back. But just then he runs like clockwork further against you.As you can see, there are some kinds of risks that make life difficult for a dealer and he has to dedicate special attention. Decide how much potential profit, while you have to respect the risk is one of the main tasks of speculation.
