Why Foreign Exchange Positions Can Be Inherently Risky
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Like an investment asset class, trading foreign exchange has risks. With excellent research, practice on a “demo account” and good capital management skills, however, it is possible to reduce all attendant risks down to manageable levels. How much research you need to do depends upon your background. To trade foreign exchange successfully, you need to understand international banking and economics. Practising on 1 or more “demos” will help you get the hang of how it is done. If you run the same trade on 2 or more “demos”, at the same time, you can compare prices and trade execution. You can also learn about how to manage your money better. For instance, the volatility profiles of foreign exchange currency pairs can be different in different regional markets. Knowing this, you can modulate your leverage levels to fit the risks involved.
Use an “Average True Range” (“ATR”) indicator, on a daily chart, to establish how volatile a currency pair might be. If your trading platform has an “historical volatility” indicator, use that too.
Are Some Foreign Exchange Positions Riskier Than Others?
As a capital market, foreign exchange is so big that it naturally divides into 3 parts: the “Asian trading session”, the “European trading session” and the “North American trading session”. Each of these sessions has its own characteristics and volatility levels; a currency pair may trade 1 way during the European trading session only to trade in a different manner when Asia is open. Use an “Average True Range” (“ATR”) indicator, on a daily chart, to find out how volatile a currency pair is – before you launch a trade. Some charting sections will also have an indicator called “historical volatility”; looking at a 4-hour chart, using this indicator, can be instructive. Usually, morning foreign exchange trading sessions are more volatile than afternoon sessions.
Sourcing Help To Trade Foreign Exchange
The internet is full of information to help you understand forex and how to trade more successfully. All major central banks have websites, in English, explaining their monetary policies stances. Large commercial banks, like Barclays and Westpac, are constantly issuing forex forecasts and trading recommendations. These can be viewed on websites like “efxnews.com” or “fxstreet.com”. Some former bank forex dealers have their own websites and post their opinions for free. For AUD-related matters, check out “fxww.com”. To brush up on your technical charting skills, go to “stockcharts.com” or “kumotrader.com”. The “newbie island” forum at “babypips.com” is a good resource for beginners wanting general help (take such advice with a grain of salt; you don’t know who is behind the opinion).
Reducing Risk When Trading Foreign Exchange
Reduce risk by cutting out all trading on Fridays and Mondays; liquidity conditions are not the same as during the rest of the week. Reduce risk by only trading in the morning; liquidity is always better than in the afternoons. Reduce risk by not trading known high-flyers, such as the AUD/NZD or GBP/JPY; life is already short enough. Reduce risk by trading more mellow currency pairs, like the EUR/CHF or USD/CAD. Reduce risk by using a leverage ratio of not more than 30:1; trading is much less stressful when you can keep all your wheels on the ground. Reduce risk by never trading more than 5 contracts at once – and, never trading more than 1 currency pair at a time.
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