Forex risk management empowers you to put in place a set of rules, thereby allowing that any adverse effect brought about by a forex trade is not beyond repair. A competent strategy requires that there be proper planning from the beginning. It is always good to have a risk management plan to which you may be able to refer whilst trading. Forex trading involves a number of risks. Currency risk, Interest Rate Risk, Liquidity Risk, and Leverage risk number among these. Forex risk management strategies go a long way towards dealing with such risks, thereby mitigating any possible damage usually attributable to risks.
Forex trading risks
Interest rate risk – This is the risk concerning the abrupt increase/decrease in interest rates, thereby affecting volatility. Interest rate changes thus impact forex prices, the investing and spending level throughout an economy expanding or shrinking, in concordance with the rate change direction.
Currency risk is the risk pertaining to currency price fluctuations, causing foreign assets to become more/less expensive to buy.
Leverage risk is the risk of magnified losses whilst we trade on margin. Since the starting outlay is tiny compared to the trading volume, you get complacent over the amount of capital you expose to risk.
Liquidity risk is the risk that you are unable to swiftly purchase/sell to pre-empt the possibility of loss. Although forex is a highly liquid market, illiquidity periods are not hard to come by – contingent upon the currency as well as official policies impacting foreign exchange.
Breaking bad trading habits – behavioural change and strategy development
Gratification trading on the web
With the entry of the internet onto the global Fx trading scene, suddenly, risk exploded out of control. This was correctly attributed to the speed of an online transaction. Truth to tell – the transaction speed, instantaneous gratification, as well as the surging adrenaline rush, triggered the gambling instinct, leaving weakened traders in their wake. Unsurprisingly, the observed tendency was there tuning to online trading as an avatar of gambling, miles removed from the approach to trading as a professional calling hungry for its own set of proper habits.
A trader speculating is not a gambler. What sets speculating apart from gambling is risk management. Gambling forsakes any kind of control over itself while speculating is amenable to the same. It has been observed that a Poker game can be played from the perspective either of a gambler or a speculator – with completely divergent results.
The odds of winning at trading?
The first concern of risk management is to calculate the odds of your trade being profitable. For that to eventuate, you must have a grip on both fundamental and technical analysis. You must by definition, be able to comprehend market dynamics, besides knowing the situated locations of psychological trigger points. Here’s where price charts can help.
When you decide to take a trade, the next factor becomes how well you control the risk. It is important to understand that the better you measure risk, the better you handle/manage it. In other words, measurement brings clarity to risk management.
The cutout point
While stacking the odds in your favour, you have to set down a limit, your cut out point when the market meets it. The risk becomes the difference between the cutout point and where you enter the market. You must accept this psychological risk upfront, where you trade. you understand the possible magnitude of potential loss, you are okay with it and, therefore, can proceed. If the potential loss unnerves you, it is best for you to desist from taking the trade. If you do, you would feel too upset to be able to execute the trade dispassionately.
Sliding your stops
Because risk is the obverse with regard to reward, you ought to draw a limit, keeping in mind that if the trade reached that point, you will shift your original cut out limit to make your position secure. This is ‘sliding your stops’. This is the point where you break even if the market cuts you out. Once a break-even stop protects you, your risk recedes to nil. The conditions, however, are that the market should be quite liquid, and you know your trade will be executed at that price. Here’s where it helps to understand limit orders, stop orders, and market orders.
They only start to notice this after some years of paying their mortgage, and by this time the rates might be too high, particularly if the loan has a variable interest rate.
If you feel that it is too high, your loan manager might present you with other alternatives like refinancing so as to be able to save on your mortgage payments.
It is also imperative that you comprehend the ideologies of mortgage rates or interest percentages before you decide to apply for a mortgage loan with a specific bank.
A loan manager will present you with four housing loan interest rates packages to select from.A fixed housing loan interest rate is another prevalent choice by those who are shopping for mortgage loans as it is not affected by economic variations in the world marketplace.
The principles of a variable housing loan rates for interest are a little tougher to comprehend since it differs from bank to bank.
You might find banks that offer lower variable interest rates than others, while some charge higher than usual.
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Credit card interest rates are much higher than other types of debt, such as mortgages.
The average credit card interest rate is around 16%, with the average interest rate for a borrower with bad credit an even higher 23.5%.1 If you qualify, getting a low-interest credit card can help you save money since paying less in interest means you’ll be able to pay back your balance quicker.
We’ll go over the basics of credit card interest rates and tips for finding one with low interest.Read the blog here: How to Get a Low-Interest Rate Credit Card?
