Trading in the foreign exchange market - a risky venture. And the question here is, of course, the financial risks. People who decide to engage seriously in currency speculation, at first often puzzled searching win-win technique. Is there such a win-win strategy for forex? Or is it just a myth? This article will attempt to answer this question.
There is such a thing as a risk-free rate. Typically, this is the deposit rate. That is, if an investor puts money on deposit in a bank, whose deposits are insured, it makes an investment that has no risk. Of course, this "risk-free" is conditional, since there are a number of situations in which money can be gone yet, but the likelihood of such a development is extremely low. The interest rate on deposits at the bank barely able to beat inflation. Thus, the investor does not multiplies, and simply maintains its capital. If we seek a more profitable asset class, they will also be a more risky. Otherwise, people would simply be able to "print" money.
Novice traders coming into the currency market, the expected return from its operations such level that it's at least several times larger than the risk-free counterparts. Consequently, the win-win strategy forex can not exist in a pure form. Even the type of surgery carry have certain specific risks. But the risk that is inherent to all speculative strategies of the foreign exchange market, it's manageable. In other words, the trader can generate risk profiles for each of its trading strategy. The relationship between risk and return is not always linear, and this fact opens up a number of interesting features for players who have chosen the path of an integrated approach to speculation. It becomes obvious that the win-win strategy of forex trading can be the currency deposit.
Methods to reduce the overall risk of trading.
So, this is what we get. FOREX - risky market. But not so sad, because the risk can be managed. Consider the following ways to reduce overall market risk:
1. Diversification. Do not put all your eggs in one basket. It was formulated as the main thesis of the method to diversify years ago. Diversification - the distribution of assets on a number of instruments. For example, a trader operates not one currency pair is trading at the same time as 7 - 10 instruments with different degree of correlation. Or use several different trading systems in order to balance. From all the market woes with this method does not get rid of, but the use of diversification within reasonable limits can substantially mitigate fluctuations in the financial results of transactions and, as a consequence, the risks.
2. Hedging. This type of operation can be applied to the case by case basis. When markets are expected strong fluctuations, it's possible to resort to a full or partial hedging their positions. For this it's necessary to take a position opposite to the previously open in one and the same tool. For example, a long position in EUR/USD can hedge by selling futures on the EUR/USD or through options. At the time when the portfolio is fully hedged, we can say that we have at the moment a win-win strategy of forex. But it's necessary to understand that profit and in this case, strictly limited to some minimum values.
3. Conservative management method. Choosing a conservative money management, the trader also reduces risks. If the potential loss on the line item is small, and if the system is applied with a soft landing for the down swing, the results of the strategy will still look stable for a long period of time, thanks to a reduced risk.
4. A special technique of doing deals. It means so simple method, as a trailing stop. When the price goes way favorable to us, we can move the protective stop to breakeven. At this point, we are proud owners of such a thing as a win-win strategy of forex.
To sum up, I want to add that we should not engage in the search for a mythical win-win strategy. Instead, you should start studying the issue to end up with a deep understanding of the nature of the risk and be able to manage it. Source: DewinforexSocial button for Joomla