Recent Posts

Counterparty. In any financial dealing, the counterparty offers the asset to shareholders. The counterparty can also bring the default risk from the financial institution in a specific transaction. The danger in spot currency trading lies beneath the solvency of the dealer. In forex trades, a clearinghouse or exchange cannot guarantee forward and spot contracts. The counterparty may fail or refuse to follow contracts in times of market volatility.

Country A currency crisis occurs because of balancing payment shortage, resulting in the downfall of a currency. It can aggravate credit dangers and liquidity. This can affect forex rating and trading. Forex is highly speculative in nature. For instance, if traders believe the currency will slump, they may pull out their assets, further hurting that currency. Granted that is the case, their investments can become illiquid or lead to insolvency from dealers if they are still trading the currency. It is imperative to evaluate the soundness of the issuing nation.

Interest rate. This can make or break a nation. If policymakers vote to hike rates, the currency will escalate because investments within the country will increase as well. Firmer currency is tantamount to greater returns. Conversely, if the central bank opts to lower rates, the currency will stumble as investors start to withdraw their assets. Rates tend to drastically impact exchange rates.

Leverage One needs margin or an initial investment to make massive trades in the currency market. This is where leverage comes in. Considered a two-edged sword, this valuable tool can amplify gains or losses. Using leverage aggressively can aggravate losses in the long stretch.

Transaction Differences in timing in a contract spell trouble. The currency market operates 24 hours a day and five days a week, timing plays a vital role in settling trades. The greater the time disparity is, the greater the dealing risk is. As a result, transaction fees surge.