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A study on forex risk management

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  1. Introduction
  2. Forex vs equities
  3. Forex vs futures
  4. The benefits of forex trading
  5. The seven most trade currencies in FOREX
  6. Main forex markets
  7. Important players in forex market
  8. Foreign exchange market and its function
    1. Structure of the foreign exchange market
    2. Causes and factors affecting the exchange rate
  9. Factors influencing a currency pair exchange rate
  10. Types of trading system
  11. Cash forex order types
  12. Nature of transaction in forex market
  13. Types of exposure
  14. Important terms in forex
  15. Forex option market
  16. Fundamental analysis
  17. Technical analysis
  18. Standard methods of technical analysis
  19. Technical analysis vs fundamental analysis
  20. A study on daily fluctuations in forex market
  21. Technical level London/New York
  22. Risk management and trading
  23. A study on hedging
  24. Effective risk management tips
  25. Suggestions and recommendations
  26. Bibliography

Forex markets have been described as continuous auction markets, and have clearing houses for the latest information about supply and demand. They are the meeting places of buyers and sellers of an ever-expanding list of currencies today includes like EUR, GBP and JPY etc. trading have also been initiated along with future contracts, enabling buyers to participate in future markets with known risks.

Foreign exchange acts as a market place for people interested in arbitrage. The factors driving arbitrage are the differences and perception of differences of the equilibrium price determined by supply and demand at various locations.

Price risk may occur due to inflation, emplacement rate, differential interest rate, current-account deficits, terms of trade, public debt, political stability and economic performance, an increase in demand, decreased international production, etc.

The forex markets provide a means to transfer risk between persons holding the currency (hedgers) and other hedgers are persons speculating in the market.
Futures exchanges exists and are successful based on the principal that hedgers may forego some profit potential in exchange for less risk and speculators will have access to increased of it potential from assuming this risk.

An investor can also reduce his risk by get well trained in forex market through various demo accounts provided by companies (Reymount, fxstreet etc) and always an invester should consider both fundamental and technical factors before taking any decision.

For the futures market, the arbitrage activities are carried out through the exchange of paper promissory notes to sell or buy a particular currency at an agreed up on price at a future date. As persons with different perceptions of where supply and demand are currently and how supply and demand will change in the future interact, currency values are driven to equilibrium. As new information enters the market, people's perceptions change and the process of arbitraging begin again.

[...] Most online FOREX brokers offer a spread of 5 tips on EUR- USD, which is the most widely traded and liquid currency pair. Many brokers offer a 3 pip spread on EUR-USD. In stock trading, only liquid stock offer tight spreads. Those spreads often represent on average between and of the value of the stock. In comparison FOREX brokers offers a 3 pip spread on all major currencies, this equates to approximately between and on the underline dollar value. Exact percentages at current rates (May 2006). [...]

[...] Weekend rates On weekends, when the markets are quiet, the rate is normally doubled to and respectively as liquidity is considerably limited CASH FOREX ORDER TYPES Margin Order Types The basic landscape in FX trading involves a number of order types the facilitate efficient transactions. Below, we have defined several of the most common terms. 1)Limit A limit order is commonly used to enter or exit markets at a specified price or better than the market price. In addition, a limit order allows the trader to manage the length of time that the order is current or outstanding before it is cancelled. [...]

[...] Trading in small increments with protective stops on our positions will allow one the opportunity to be successfully in Forex trading Emotions Another and one of the biggest reasons for improper risk management are emotions. Fear, Hope and Greed one or all of them at a time can attack the human mind and it is very easy to miss out on your risk management strategy. RISK DISCLOSURE STATEMENT 1. Trading Is Very Speculative and Risky. Foreign Exchange Trading is highly speculative and is suitable only for those customers who understand and are willing to assume the economic, legal and other risks involved, and are financially able to assume losses significantly in excess of Margin or deposits. [...]

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