Foreign exchange investment on high-risk issues

Posted by GRY on October 31, 2018

Foreign exchange margin trading in all investment tools belongs to high-risk investment, but it is the most suitable for rich investment experience of personal and corporate investment tools. Online trading platforms allow the use of high leverage to finance foreign exchange operations. In theory, using the highest proportion of financing to operate foreign exchange, as long as the market has a dime of change, not only lost money, and losses may be higher than the original account amount. Therefore, the funds used to operate the foreign exchange market should be free of idle funds that would not affect the daily life or the business overhead of the company.

The greatest weakness of human nature is greed. The leverage of margin further exposed the nature of this human greed. Every investor who takes part in margin trading takes no exception to this, and makes them rich, with the greatest profit possible in the shortest time or with the least amount of money. Therefore, the first task of risk control is to learn self-control.

The following is my exposure to the risks made in the foreign exchange industry, please read carefully.

“Liquidity” is one of the most talked about topics when talking about foreign exchange brokers. The liquidity of foreign exchange in general is the liquidity of foreign exchange trading, whether it is dealing with the common trading of foreign exchange or the liquidity provider of the financial B end, i.e. LP, the liquidity of the foreign exchange transaction is important to us.

What is the slip point?

The so-called slip point refers to a phenomenon that the designated trading point issued by the customer is quite different from the actual trading point when trading. Slip point is the point of the order and the final transaction point has a gap.

Every trader inevitably runs into a slip point, whether they are trading stocks, currencies or futures.

Assume that the customer on the platform to see the price of the euro against the dollar is 1.3000 and the market of trading volume on this price can accept is $5 million, if the customer order amount is $6 million, that how to do? Of that, $5 million will be sold for $1.3000, and the remaining $1 million will be sold for $1.3001 or more.

Causes of slip points

For the reasons for slip point, we have already set forth one in the above example, and we’ll set out the system once again.

1. Market offer tomography.

Our example above is actually a slip point caused by a market quote fault. Liquidity can be said to be the air of financial markets, a market without liquidity is bound to be a market without vitality. The same is true of the foreign exchange market. Similar to other markets, once a customer makes a sale, there must be another customer to make a purchase, so as to guarantee the normal operation of the market.

In the normal case, the market for liquid liquidity is quoted as being continuous, but at a time when there is a sharp fluctuation or when a large amount is directly in and out, a price fault occurs.

2. The network delay

Generally speaking, the foreign exchange transaction is the bank provides the quotation to the dealer, the dealer provides the quotation to the customer. When the client makes a deal, the transaction is made to the dealer’s server, then forwarded to the bank system, and then it’s done there, and in the process, there’s usually a slight delay, and it’s not usually possible to see it, but once it’s in the wild, the server can’t handle it, and if the server can’t handle it, the delay will happen.

Features of the slip points
  • When non-agricultural market fluctuations are particularly intense, under normal circumstances, many traders will become especially cautious. At this time, many dealers adopt the form of non-quotation or increase of quotation point difference, which will cause many trading platforms to restrict our trading before and after non-agricultural data release.

  • In the exchange market, many platform sliders encountered in the exchange market are also different, mainly caused by different quotation of the circulation dealer. Remind everyone here in the non-agricultural night, such as sharp fluctuations in the exchange rate must be aware of this risk.

  • Some platforms have a platform for gambling transactions, and their transaction orders have nothing to do with the market. They only need to inform the port setting MT4 quotation to proceed, and complete zero slip point can be achieved.

  • The slip point is more likely to occur in the market with light trading volume, which is more likely to amplify market fluctuations, leading to the expansion of the slip point. The main foreign exchange currency pairs are more liquid, which can effectively reduce the occurrence of slip point. If foreign exchange is traded between London and New York, most of the currency pairs will have adequate liquidity and less slip points.

So in this remind in some special period of time, such as the big data, when trading markets opened or sharp fluctuations in market prices, the market price is of foreign exchange will appear empty or transient stagnation, consecutive jump may be positive or negative impact on trade, if there is a position at this time, would be likely to have larger slippage phenomenon of positive and negative.

The risk of a large loss of your capital due to a sharp jump or fluctuation in the foreign exchange quotation is fully understood and the trader is not liable for the market risk. The usual biweekly jump requires traders to be careful.

High-risk investmentss

Foreign exchange margin trading is a high-risk investment in all investment instruments, and not suitable for all investors. Using high levels of leverage to do currency manipulation has its advantages and disadvantages.

Therefore, you should carefully consider your investment objectives, level of experience, and risk tolerance before making a decision to invest in foreign exchange. Losses may exceed the funds deposited. Therefore, please do not use unaffordable funds for investment.

And, in any kind of foreign exchange transaction activity, will inevitably face certain risks. Any one involved in foreign exchange transactions will be but not limited to due to a variety of potential political and/or risk arising from the changes the state of the economy, the changes will be for some money for a significant impact on prices and liquidity. Investors should be aware of all risks associated with margin trading.

All currency-related transactions involve risks, including but not limited to potential changes in political and/or economic conditions that may have a significant impact on the price or liquidity of the currency.

In addition, foreign exchange transactions have leverage properties, that is, any market dynamics affects the amount of funds deposited, and the degree of impact is directly proportional to the selected leverage, possibly disadvantageous, and may also be advantageous.

Margin trading has a big temptation for some speculators who want to play small. However, margin trading is a double-edged sword. Although $1, 000 can hold $100, 000, it does not mean that a $10, 000 account should buy $500, 000 or $1, 000 in foreign currency at a time.

Although the book looks as if you can hold $100,000 for only $1,000, a $100,000 foreign exchange position should itself be treated as $100,000, not just a $1,000 deposit. Many experienced investors are able to properly analyze the market and have the ability to select the best approach points, but at the end they are often beaten down with margin trading, leading to the fact that they have to be paid out at the worst price.

You may lose all of your original margin and require a margin call to maintain your position. If you fail to recover the margin in time, your position will be forced to close by the system. All losses will be your own.