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Forex trading and domestic currency risk?

Forex trading and domestic currency risk?

Postby bikendi » Sun May 05, 2013 1:10 pm

hello,

if you trade a currency pair (eur/usd), neither of which is your own domestic currency (gbp), how much of an affect can changes in the gbp/eur and gbp/usd exchange rates have on your trade?
are you effectively exposed to 3 currency risks?

for an example; suppose you live in the uk, and you go long on eur/usd. but while you are holding that position, the eur crashes relative to the gbp. when you close your position, will you have a nasy surprise when you convent eur back into gbp?

im a bit new to this so any help is very greatly appreicated.
thanks for sharing your knowledge.
bikendi
 
Posts: 132
Joined: Tue Jun 26, 2012 1:14 am

Forex trading and domestic currency risk?

Postby tier » Sun May 05, 2013 1:53 pm

First, remember to be successful in business to have to have Jesus on your side.Only Jesus can open the door to success in your life and also

Currency risk in Forex trading refers to a group of financial risks accompanying every currency transactions, including and any international transaction.

Currency risk in Forex trading

In view of the fact, international transaction are made between residents of different countries and participants are not only exposed to currency risk, but also:

- Price (from the prices of international commodity markets)
- Transport (amendments of freight conditions)
- Payment (for non-payment)
- Transfer (changes in the legal regulation of foreign trade)
- Political and others.

Forex Currency risk arises because payments on foreign economic transactions are performed in a currency, that currency is foreign for at least one of the parties.

In the broadest sense, a currency risk means the risk of any change in the value of the currency and the deterioration of the currency regime in a country. With such a broad interpretation, it also includes the inflation risk resulting from the devaluation of the domestic currency.

For example, the growth of prices in Japan, could influence the external value of the yen and will lead to lower rates. If the decline in the rate of Japanese currency is fully consistent with the higher levels of inflation in the country, then inflationary pressures will be completely absorbed by the change in exchange rates.

If the inflation growth and exchange rate of domestic currency remains unchanged, then the national currency is overrated. In this case, the holders of Japanese yen are not threatened by the currency risk, but their purchasing power to the Japanese market is reduced.

Currency risk is usual circumstance in Forex market.

Currency risk arises:

A. directly, when a company has payments and maturities, or revenues and receivables in foreign currency in the future and can not accurately predict the course of the currency.

B. indirectly, when income from business or company costs are related to the exchange rate.

In general, from currency risk are affected most of the active economic agents.
tier
 
Posts: 162
Joined: Mon Jun 25, 2012 1:55 pm

Forex trading and domestic currency risk?

Postby dov » Sun May 05, 2013 2:31 pm

Hello dave,

If you have a position in any currency pairing, the risk is in that pairing only, movements in other markets have an indirect affect on your current trades prices, usually I have found that movements in the CAC40, Dax, Dow and footsie are all interrelated, a movement upwards in either of those usually has an affect on the exchange rate pairings of the other markets, upwards swing for example of the Dax and downwards in the Dow for example sends the value of the dollar down in relation to the Euro ! Convertoing back and fort isnt necessary either since you will choose your base price when you open your trading account which will be dollars or euros or pounds for trading purposes.
dov
 
Posts: 146
Joined: Mon Jun 25, 2012 11:39 pm

Forex trading and domestic currency risk?

Postby ashar » Sun May 05, 2013 2:46 pm

You would have to define what "crash" means to you. Are you talking about 300 pts on the EUR/USD? 500 pts, 1000 pts? The EUR has declined more than 500 pts during the past month. Do you realize how much that is in "currency risk?" That is five pennies in USD. Each hundred points is equal to one penny.

What is your time period?

Unless you are planning to hold a position for several months or years, and unless you're trading millions, your currency risk is negligible.
ashar
 
Posts: 46
Joined: Tue Oct 30, 2012 1:45 am


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