This strategy limits all transactions to a single trading session. Scalpers nimbly enter and exit the market to capture small profits a few pips at a time. This high-volume strategy involves profiting from very short-term market moves. This strategy takes advantage of the extreme volatility exhibited by currency pairs after the release of important economic or geopolitical news. If any geopolitical event reduces the participants in the market, liquidity risk, or the risk associated with the ability to buy or sell, becomes a significant factor. As with any traded asset, the ability to sell relies on someone willing to buy. While regulators such IIROC in Canada regulate these companies to ensure they maintain appropriate safety nets, extraordinary events such as the financial crisis in 2008 can lead to additional risk. The risks associated with these companies come about when they cannot cover all their transactions or are at risk of default. Counterparty risk. Counterparties are the entities which provide the assets to investors when they trade.Governments that are more reliable garner premiums, where riskier government currencies will trade at discounts. When geopolitical events arise, such as we’ve seen with the crisis in Argentina, they manifest within the currency prices. Sovereign risk. Governments back their home currency.Since the exchange rate between two currencies is derived from the supply and demand of each currency, changes in the interest rate can result in movements higher or lower in the currency pair pricing. Interest rates. Central banks and governments use interest rates as a way to increase and decrease money supply within the economy.Opening or closing a position as prices move up or down can be more challenging when volatility is high and price swings are wider. Volatility risk. Volatility or variability are the changes in price quotes over a period of time.Because trading is done on margin, unexpected price movements can result in margin calls, which require investors to add additional margin costs or add additional funds. Leverage risk. There very instrument traders and investors use to capture more from small movements in currency price can also magnify substantial price swings.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |