I f You Want To Make Money On The Foreign Exchange Ma rket I t Takes Discipline And Knowledge The foreign currency market is the largest in the world and a lot are people are drawn to it as it seems that it is a relatively easy way to make money. It is not as simple as that and a lot of specialist knowledge is required to profit. Foreign currency trading is the risk associated with investing in Forex market. Forex is the word used in financial terminology to imply the foreign exchange market. The Foreign exchange universe or Forex Univerzum as it is called is a full horizon of opportunities to make money. However if you are a starter, you need to know some of the basic terminologies and points to consider before you step into the foreign exchange market. Investing in the foreign exchange market can take many forms, however the basic ways remain same; you can either buy the securities over the counter, OTC, or directly with the seller. The types of securities that you can buy or hold in foreign denomination include options, futures and forwards and simply holding currency of the other countries. If you invest with an exchange, you will have to incur the fees of the Forex Broker. This Forex broker acts as a guarantor between you and the seller of the securities and the exchange is, in essence, standardized. However if you choose to deal directly between yourself and the seller, the risk will be lower as there will be no guarantor but the exchange in essence is known as non-standardized. If you invest in foreign denominated forwards, the delivery of the contract will definitely take place and the daily marking to market will not occur, as opposed to futures contracts in which cash settlements will occur on a daily basis and delivery of the contract might never be exercised. If you want to manage risk effectively, you should take care about the hedging position you undertake if you are investing in puts or calls. As a call buyer of the foreign currency, you should be concerned about rising bond prices and falling interest rates in the country. If you want to minimize your losses, you should take a better position as a call buyer and if you lose if at all any amount, the premium only, you should take the position as a call writer. Similarly, if you believe that the broker will charge you a greater origination fee, upfront and back end fee, you should take the position as a short put writer. This will limit your losses and increase your profits in the long run. The foreign currency investments are greatly based on speculation contracts. Using the BIS standard framework model for foreign currency risk measurement, you can calculate the speculated capital charges on your net long or net short position that you hold in foreign currencies. This needs a simple calculation by multiplying the higher of your net long or short position by eight percent. The resulting value will give you the amount you will have to pay as a capital charge. This way you can hedge your future position by limiting which ever position, short or long, will cost you a higher amount of capital charge. You need to be on your guard when it comes to the pay off
matrix that you generate and you might need the services of a Forex broker if you are new to this kind of investment.
Resource After the doors were opened to everyone to trade on the foreign exchange market a lot of individual investors became interested in this. However you really need the help of the forex univerzum and a forex brokerek in order to be really successful. There is a lot to learn and you need to understand the different signals and other indicators that you can use to predict whether which way a currency pairing will move. It is not a good idea just to jump in and guess or you will end up losing your money.
Published on May 1, 2012
The foreign currency market is the largest in the world and a lot are people are drawn to it as it seems that it is a relatively easy way to...