HOW TO BECOME A TRADING FOREX FOREX RISK

WHAT IS FOREX?
FOREX stands for Foreign Exchange

or, in other words, currency trading market. Currently FOREX is the largest and fastest growing financial market in the whole world with a daily volume of almost 3 trillion dollars. Other names for FOREX include "Retail FOREX", FX , "Spot FX" and even just "Spot".

WHAT IS FOREX MARKET?

The foreign exchange market is a

global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends.

FUNCTIONS OF FX MARKET
Transfer purchasing power between

countries;
Obtain or provide credit for international

trade transactions, and

Minimize exposure to the risks of

exchange rate changes.

What Does ForeignExchange Risk Mean?

The risk of an investment's value changing

due to changes in currency exchange rates. The risk that an investor will have to close out a long or short position inaforeign currency at a lossdue to an adverse movement in exchange rates. Also known as "currency risk" or "exchange-rate risk". Foreign exchange is essential to coordinate international business transactions. Foreign exchange describes the process of

OBJECTIVES OF FOREX RISK MANAGEMENT

Maintaining core cover to total exposures ratio, as

per forecast of market conditions. Periodical evaluation of unhedged exposures. Market intelligence and identification of seasonal factors. Diversification of currency mix to reduce interest cost on foreign currency borrowings. Trading on non-dollar exposures to minimize the cross-currency risk and achieve better core rate. Identifying market opportunities and operate to derive invisible gains/opportunity benefits.

THE FOREIGN EXCHANGE MARKET IS UNIQUE

Its huge trading volume representing

the largest asset class in the world leading to high liquidity. Its continuous operation: 24 hours a day except weekends, trading from 20:15 GMT on Sunday until 22:00 GMT Friday. The variety of factors that affect exchange rates. The use of leverage to enhance profit and loss margins and with respect to

TYPES OF FOREX RISK

Managing foreign exchange Foreign exchange exposure Transaction exposure Economic exposur Translation exposure

TYPES OF FOREX RISK EXPOSURE

Managing foreign exchange risk

is essential to successful investment in the FOREX market. Foreign exchange exposure or risk can be classified into three types: transaction, economic and translation exposure. Transaction exposure refers to the extent to which the future cash transactions of the firm may be affected by any changes in the

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Economic exposure measures the

impact of changes in exchange rate on the firm&'s cash flows and earnings.
Translation exposure refers to

accounting exposure. It measures the impact of changes in exchange rate on the financial statements of the group of

FINANCIAL INSTRUMENTS
Spot Forward Swap Future Option Speculation

SPOT
A spot transaction is a two-day

delivery transaction as opposed to the futures contracts, which are usually three months. This trade represents a direct exchange between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreedupon transaction.

FORWARD
One way to deal with the foreign

exchange risk is to engage in a forward transaction. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be one day, a few days, months or years.

SWAP
The most common type of forward

transaction is the FX swap. In an FX swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.

FUTURE
Futures are standardized and are

usually traded on an exchange created for this purpose.

The average contract length is

roughly 3 months.
Futures contracts are usually

inclusive of any interest amounts.

OPTION
A foreign exchange option is a

derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the

SPECULATION
Controversy about currency

speculators and their effect on currency devaluations and national economies recurs regularly.
Large hedge funds and other well

capitalized "position traders" are the main professional speculators.

FOREX TRADING TIPS - 10

Know yourself. Define your risk

tolerance carefully. Understand your needs. Plan your goals. Stick to your plan. Choose your broker carefully. Pick your account type, and leverage ratio in accordance with your needs and expectations. Focus on a single currency pair, expand as you better your skills.

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Automate your trading as much as

possible. Do not rely on forex robots, wonder methods, and other snake oil products. Keep it simple. Both your trade plans and analysis should be easily understood and explained. Study money management. Study the markets, fundamentals,

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 is uncontrollable - no single event, individual, or factor rules it. Enjoy trading in the perfect market! Just like any other speculative business, increased risk entails chances for a higher profit/loss.

TRADER SHOULD COVER BOTH BEFORE AND DURING A Unexpected corrections in currency TRADE

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

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