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Top 10 Forex Risks To Consider Before Starting Currency Trade

There are several forex risks that one needs to be aware of while trading in currency. In as much as there is much money to be made in the forex market, one must understand the risks involved in the market and prepare one’s mind to face the reality should one be confronted with any of…

There are several forex risks that one needs to be aware of while trading in currency. In as much as there is much money to be made in the forex market, one must understand the risks involved in the market and prepare one’s mind to face the reality should one be confronted with any of the challenges in the course of doing business.

Forex trade is not always a bed of roses; the ecosystem is so volatile that the possibility of losing one’s hard earned income is quite high. The volatility of the market makes it almost impossible to predict what could happen in the next minute. In this post, we shall take a look at various risks one could be exposed to, some tips to enable you trade safely, forex trading FAQs, and a lot more.

Risks you must consider

If you wish to do your currency trade with safety and not be exposed to the danger of losing your money, you need to be familiar with the following risks associated with the business irrespective of the platforms where your trading is carried out.

Credit Risk

Credit risk occurs when a party to a trade finds it impossible to pay the other party. One reason why this could happen is if one party is bankrupted or defaults in making his payment. In order to avoid this, you must understand the rules and regulations binding on the forex broker you are dealing with.

Ideally, every country has some forms of regulation in place to check the activities of the forex brokers that operate within them. They ensure that brokers have adequate reserve in case the other party to the trade is unable to cover their trading loses.

Volatility Risk

The forex market is highly volatile and volatility has a way of influencing the movement of prices and the profits or losses one could make. Volatility is not always about the negative trends in the market; there are equally the positive sides to it.

Making significant gains would almost be impossible if there were no volatility in the ecosystem. However, the risk of losing huge amount of money increases when there are high impact news events. Traders need to be watchful because periods like these can affect the position of a trader unfavorably.

Broker Risk

While some forex brokers are highly regulated, some others are not. What this implies is that you have more security patronizing the regulated broker than the unregulated ones. The kind of brokers you deal with determines how your working capital is managed.

In order to not fall into the wrong hands, you need to do due diligence of researching your broker before entrusting them with your money. Some smaller brokers (especially those domiciled in offshore locations) shy away from being regulated because of the cost of obtaining operational licenses in their country. Moreover, regulators always require that they meet certain capital obligations to be allowed to operate.

Each country has specific rules that govern its forex market. In order to ensure the safety of your fund, it is advisable to do business with brokers that are regulated by government body. 

Exchange Rate Risk

The dynamic changes in the value of currency expose those currencies to certain levels of risk. Companies operating in multiple countries or exporting their products regularly are particularly exposed to exchange rate risk. 

The exchange rate changes in the country where a multi-national company operates in and that of the country in which it does business play a great role in determining their profits and margins.

Margin Risk

Forex trade can considerably be influenced by margin or leverage risk.  Margin trading enables you to make use of leverage. Generally, it is essential that you put up just a part of the entire value in good faith when about to place a forex trade. But when you are able to make use of a borrowed capital to improve your position size, then one can say that your trade is leveraged.

Margin requirement is the amount you are mandated to place upfront. Though some brokers permit their forex trading clients to leverage up to 100:1, it is not to say that using it may always be good for you.

Counterparty Risk

The company that offers the asset to the investor in a financial transaction is referred to as the counterparty. Counterparty is therefore, the risk of non-payment from the broker or the dealer in a particular transaction. The counterparty risk may result from the market maker’s solvency in spot currency trading. When volatile conditions arise in the market, the counterparty fail to or are unable to stick to the condition of the contract. 

Leverage Risk 

Leverage necessitates a little initial investment otherwise known as a margin, in order to have access to sizeable trades in foreign currencies. When there is a little price instability, this can lead to margin calls which would need the investor to disburse an extra margin. Using leverage insistently in market conditions that are volatile will lead to significant losses more than the investment initially made.

Transaction Risks

These is exchange rate risk which usually comes as a result of the differences in time between the commencement of a contract and its settlement. Exchange rates can sometimes change before trades have settled, since forex trade is done on a 24 hour basis. As a result, prices are not always stable; currencies at different times of the day may trade at different prices. Transaction risk gets higher when the time differential between when a contract is entered and settled is greater.

Country Risk

Most developing countries fix their exchange rate to a world leader such as the dollar or pound sterling. To ensure that fixed exchange rate is sustained, the central banks need to have enough reserves in place. Recurrent deficits in balance of payment can trigger a currency crisis and lead to currency devaluation. This may adversely affect prices and forex trading.

Since investing is speculative in nature, if an investor feels that the value of a currency is going to dwindle, they may start withdrawing their assets; this leads to more devaluation of the currency. In the forex trade, liquidity danger and credit risks are made worse by currency crises. This also makes a country’s currency less attractive.

Interest Rate Risk

A rise in a country’s interest rates attracts more direct foreign investments since investors are assured that they will get higher returns from investing in the country’s assets. This investors’ confidence further makes the currency of that country stronger in value.

On the contrary, when interest rates fall, investors withdraw their investment thereby bringing about a fall in the strength of the currency. The differential between currency values can easily bring about remarkable change in forex prices, as a result of the effect of interest rates on exchange rates. Having examined the various risks, it’s time to move ahead to examine the kinds of exposures in the forex market.

Currency exposure

This is a situation where an investment or part of an investment is in foreign currency and becomes exposed to risk when the value of that currency experiences some changes. There are basically three types of Currency exposure and they include:

Transactional exposure

This is as a result of an actual transaction occurring in business which involves foreign currency. If a foreign currency transaction and the currency market shift in a direction that is not favorable, it can easily defeat the chances of making profits, which is primarily the essence of the monetary transaction.

This kind of foreign currency exposure usually comes up when there is payment for imported goods or services, foreign debtors of sale, payment towards the EMIs of debts, receipt/payment of dividend, etc.

Translation exposure

The other name for this type of exposure is accounting exposure. This is due to the fact that the exposure results from translation of books of accounts into the home country. Translation activity is performed on account of reporting the books to legal bodies or to the shareholders.

Loses or gains resulting from translation exposure usually don’t have more meaning over and above the reporting requirements. If the currency market experiences a favorable change in the following year, the exposure can be overturned.

Economic exposure

Foreign exchange controls the value of a firm. A firm’s value is the function of operating cash flows and the assets it possesses. Economic exposure has higher impact than the two aforementioned exposures. It can determine the operating cash flows and the assets of the firm. It is usually difficult to identify and measure this type of exposure.

Tips for safe trading

Since forex trading involves currency exchange risk, every trader needs to have some tips for mitigating the risks in order to prevent losing huge sums of money while trading. Some of the tips to follow include:

Choose the right bet size: make sure to check the live currency rates before proceeding to choose the right bet size. Avoid a position which is too large compared to your account size.

Limit forex trade: to avoid possible damage, you should dedicate a few percentage points of your entire portfolio to forex trading.

Set some limits: to reduce the level of damage, it is necessary for you to set a stop-loss order in place, to enable you exit a position in case a particular price does not favor you.

How to be a better forex trader

In order to be a better forex trader, the following guidelines can really be of help to you:

  • Check your emotions

The tendency for a new trader to place trades based on emotion is usually very high, especially after making a few successful trades. This increases the risk of losing all of one’s investments. You must avoid plunging in all your money after a few successes or losing hope too easily when you experience a few failures. Not checking your emotion could expose you to high fx risk.

One way to show your smartness is to start with little amount and minimize losses even though your profits will be small. It is better to earn small profits than lose all your money.

  • Practice makes perfect

It is quite understandable that the forex market is highly volatile and no one can easily predict price movements. However, to be on the safe side, it is good for one to practice in demo environment and understand the nitty-gritty of the business before graduating to live trade. This helps to reduce losses.

  • Appraise financial standing

Make sure you have evaluated the risk involved in the market and you are ready to go ahead with the amount of money you are about to invest in the business before actually going ahead. You could lose money that is worth a fortune to you.

  • Look for a dependable broker

Money is hard to get and you wouldn’t want to throw your money away. Do you? Online forex trading is carried out through a broker; you need to carry out extensive research to be sure who your broker is before using their platform. 

One way to be sure of your potential broker is to look up their trading record, the commissions and the spreads they collect, their trading platforms, deposit and withdrawal methods, and also get in touch with traders who are with the broker to ascertain how efficient they are at filling orders.

Forex Trading FAQs

  • Can anybody trade forex?

Though the forex market is open to everybody, only those who have basic understanding of forex trading should trade. You are going to lose your money if you have no knowledge of how things are done.

  • What are the trading hours on Forex?

Forex trading is usually available 24 hours a day from Sunday 5:00PM EST to Friday 4:00PM EST.

  • Can one trade forex on weekends?

No. Forex trading usually closes on Friday afternoon and reopens on Sunday evening.

  • What is the minimum starting income for forex trade?

The minimum amount needed to start forex trade depends on the broker. While a lot of brokers accept a minimum of $100, others are willing to take something less. However, most brokers allow you to use the demo account first to understand how things work before putting your money.

(Featured image by Csaba Nagy via Pixabay)

DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.

This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.

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Statements about Cryptocurrency

Statements about Cryptocurrency

Cryptocurrencies are in a bubble and regulators could burst this at a whim.

  • Eight years after the introduction of Bitcoin, there are now over 900 cryptocurrencies and their prices are at all-time highs.
  • Richard Schiller categorizes bubbles as an underlying story driving the market forward, as opposed to the fundamentals of the assets. Cryptocurrencies are riding on a narrative of economic empowerment and freedom.
  • Despite the widespread attention that cryptocurrency receive, many of the actors involved in the market are not fully informed. Debate tends to turn to hype and naive investors are buying crypto-assets without fully understanding what they are.
  • Banks spend 73% of the market capitalization of Bitcoin each year on regulatory compliance. Crypto-assets are currently unregulated and free of these restrictions. As such, the market has thrived but also developed some bad habits.
  • Regulators cannot necessarily shut down cryptocurrencies, but they can restrict liquidity into them from fiat currencies and hamper their growth. The global derivatives market, for example, is worth $1.2 quadrillion, dwarfing Bitcoin’s $100 billion market cap.

Statements about Cryptocurrency

Market manipulations in crypto markets are undermining their credibility.

  • Due to low liquidity, no regulation, and a lack of clear understanding of the markets, pump and dumps are widespread in crypto markets. This is where a speculator can artificially sell while concurrently buying their own currency, wait for the market to rise, and then dump their holdings.
  • Frontrunning is also a common occurrence in ICOs, where early investors—who are used to show initial faith in the enterprise—buy discounted tokens before immediately selling them on.

As with historic bubbles, scams are exploiting naive investors.

ICOs can have the characteristics of vaporware. Entrepreneurs are raising hundred of millions of dollars purely on concepts. Money is being raised from investors who do not truly understand the technical concepts being proposed to them, let alone whether they are feasible.

  • The actual asset structures of ICOs are not only complex but also new forms of assets in their own right. This further confuses investors, which is compounded by the “FOMO” mentality of rushing into investments and following the crowd.
  • The use of celebrities to promote ICOs further demonstrates the use of manipulative marketing techniques used to cajole immature investors into participating in ICOs.
  • The current ICO craze is reminiscent of the South Sea Bubble of the 18th century, a speculatory period that involved crazed investment into enterprises in the New World. Once one of the highest valued companies of all time, the South Sea Company’s bubble burst and the company disappeared almost as quickly as it appeared.

Blockchains are still not proven technology, and more work is required.

  • Blockchains are still new concepts and their technology has not yet been proven on a consumer-wide scale. Attention should be focused on developing this, not speculating on short-termist projects.
  • The security of blockchains is a concept that most investors in crypto-assets do not understand. The onus is on them to protect their assets, which, on the basis of the amount of thefts and frauds in the space, is not being done properly.

There are some solutions to these issues.

  • A less polarized mentality of “us against the world” is needed; this could be enforced by the promotion of self-regulatory standards. These could also help to highlight the bad actors in the ecosystem.
  • More development is required into the underlying technology of blockchains. In the long run, this would be far more valuable than ICO moon-shot projects.
  • Awareness and discussion needs to be promoted. Conferences should present balanced debates from both sides of the crypto-view and more emphasis should be placed on educating investors instead of soliciting their investments.

Originally Published here at https://www.toptal.com

Statements about Cryptocurrency

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CMStrader Signals provider, the number 1 signal provider 4 years in a row

CMStrader Signals provider, the number 1 signal provider 4 years in a row.

CMStrader, the number 1 signal provider 4 years in a row, is now offering free signals to new clients!  Reliable trading tools are fundamental part of successful trading.

cmstrader for the Best Trading Signals

cmstrader for the Best Trading Signals

 

CMStrader’s signals success rate is estimated in 91% this should be enough to take a look and decide for yourself. since this is their biggest feature and drives this broker towards success, it is opretty afe to say that they do their utmost to provide you with quality forex signals.

This broker also entered the cryptocurrency market and offers several cryptocurrencies.  in short they act on the market and engage their clients directly.

when you start trading at CMSTrader, you can choose from a extended list of currencies, indices, commodities, gold and oil.

CMStrader Signals for better Trading

CMSTrader sends trading signals to traders’ accounts when there is an opportunity to buy or sell orders at specific points; an overview of the speculated price or loss ratio is included.

CMStrader Signals the number 1 signal provider among brokers

CMStrader Signals the number 1 signal provider among brokers

The signals are sent directly via SMS to a cellphone for major currencies traded on the stock exchange, foreign goods and precious metals.

In addition, signals can be sent to an e-mail address and or traders can be notified directly over the phone.  This service is available 24/5.

Like with Most proper signal services don’t expect 50 signals a day as simply there are not that many. you will get maybe a few good ones a day on which you could and most of the time should act.

Earn profits with CMStrader Signals in the forex market – the biggest trading scene in the world. Enjoy our unique benefits, trading education, minimum margin and best leverage! Start with a demo account and enter the amazing world of forex with CMStrader.

More about CMStrader Signals & Forex Broker

  • Name :CMSTrader
  • Website :cmstrader.com
  • Established :2013
  • Regulation :FSP
  • Country :United Kingdom
  • U.S. Clients Allowed ?  :No

CMSTrader is a leading investment advisor specializing in personal wealth management and growth and is a somewhat a newcomer to the Forex market.

they started in 2013 and since then have won several awards 2 including one for having best customer service in 2013.

CMSTrader “CMStrader Signals” is authorized under the name of CMS Ventures Limited which is a New Zealand Registered Financial Service Provider (FSP).

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Supreme Court Sides With Bits of Gold in Bank Dispute

Supreme Court Sides With Bitcoin Broker “Bits of Gold” in Israeli Bank Dispute

Upon appeal, the Israeli Supreme Court has rejected the closure of Bits of Gold’s banking facilities at Leumi bank, Tel Aviv.

The Israeli cryptocurrency brokerage’s appeal followed a previous ruling against it that has now been set aside by the higher court.

As Israel and many other countries struggle with the accelerated phenomenon of virtual currencies, Leumi Bank recently made the news for being a particularly blunt in its rejection of Bitcoin.

We should of course not be surprised with the banks attitude towards bitcoin or any other cryptocurrency for that matter. keep in mind that the banks become more and more obsolete because of them. Bits of gold versus leumi

They will keep on loosing money which now they make with ridiculous commissions of work that is fully automated. so they will try to see how they are able to make the operation and acquiring cryptos  as hard as possible knowing that they will never be able to stop them.

There is widespread anticipation that the upcoming G20 Summit in March 2018 will produce a global, moderate framework for a regulatory approach. Set against that are persistent hostile stances the world over from banks, asset managers and even governments towards cryptocurrencies.

Now that the countries understand there is money to be made with Taxation in cryptocurrencies they might want to make sure that the banks stay within their lane. 

Apart from the Israeli revenue service opting to tax cryptocurrency assets as “properties” and other more positive developments dating back to mid-2017, Israel remains a strange mix of genteel acceptance alongside wildly opposing voices.

There is thus Hope But no decision

Bits of Gold has fought a David and Goliath battle since their banker decided it wanted to steer clear of all cryptocurrency-related business.

On record as recently telling another bitcoin-related trader that they simply don’t want the business, Leumi Bank’s hard-line stance is accumulating bad press. The second-largest bank in Israel appears as discriminatory when analyzing virtual currency traders and other digital coin businesses.

During 2017, a customer made a bank transfer to the Kraken exchange site for buying bitcoin worth $1000. The bank identified the request, halted it, and started investigating.

The elated CEO of Bits of Gold, Youval Rouach said that “The court’s decision enables us to focus on the growth of the Israeli cryptocurrency community.”

 

The February 26 Supreme Court ruling granted Bits of Gold a temporary injunction against their account closure pending further scrutiny by the bank and other parties. The presiding bench declared that the company had “acted transparently and did not violate any provision of law.”

Calling the bank’s concerns “speculative” and turning an unsympathetic ear to the plaintiff, the ruling does, however, allow for the bank to still close the account on any small technical detail that defies legislation. As a record of a public spat around cryptocurrency’s right to be recognized in many ways, the ruling is seen as a victory for the local cryptocurrency community.

One Small Step Forward

Although not as absolute as nations like China that has opted for draconian bans, Israel is a front line for digital coins’ right not just to exist, but also become assets in the true sense of the word. The Supreme Court noted in its written ruling that Bits of Gold had not made itself guilty of the violation of any standing laws since opening its doors for business.

 

The Bits of Gold v. Leumi Bank case might become something of a test case once the bank applies its mind in scrutinizing the company’s accounts against the backdrop of existing legislation. The outcome will also be informed by sentiment post the G20 Summit due in March as well as other global regulatory trends.

Now that the countries understand there is money to be made with Taxation in cryptocurrencies they might want to make sure that the banks stay within their lane.

This was First Published by coindesk

 

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