Initially investments were bought physically and at a very slow pace, but with the introduction of internet trading, investments are now done at the speed of light. A trader can now invest easily and make profits at a relatively short period of time. Based on this speed, it is really important to efficiently manage one’s account to avoid hitches.
INTRODUCTION TO INVESTMENT MANAGEMENT
Some investors view forex speculations as gambling but that is not the case, the major difference between speculation and gambling is risk management. That is, in forex speculation, the risk can be managed while in gambling it cannot. There are some rules of running a forex venture, they are:
- UNDERSTANDING THE ODDS:
One of the key rules of managing forex investment is the ability to calculate the odds of the trade. To calculate the odds, one need to know of the fundamental and technical analysis, and also the dynamics of the market he/she is trading. There is also the psychological price trigger location as can be gotten from the price chart. The relevance of this rule is to determine the risk level of a trade. Having this knowledge could help manage the risk associated with the trade. In stacking the odds favorably, the trader is expected to draw an entry point which signifies where one can comfortably invest.
- LIQUIDITY LEVEL OF THE INVESTMENT:
The next thing to consider is the liquidity level of the investment. Liquidity means the availability of traders to buy or sell the investment at current price for ease and efficiency in taking the trade, forex investments is known for a high level of liquidity as it account for about $4 trillion per day, however such liquidity is not the same for all current pairs neither is it available to all brokers, this is where a trader needs to be careful as the brokers liquidity affects the trader except the investment is done directly which a large forex dealing bank.
- RISK PER TRADE:
Another factor to consider is the trade capital and total deposit. The capital per trade should be a small fraction of the total capital. A good start is about 2% which means before the capital will be totally wiped out he/she must have made a wrong investment 50 times which is very rare. The measurement of the risk per trade is done using your price chart.
- LEVERAGE OF THE INVESTMENT:
Another risk detector is the leverage, which is the use of the bank's or broker's money rather than a strict use of money. In forex trading, there are so many leverage such as the 100:1 in which one can use a deposit of $1,000 to trade $100,000. Forex leverage cuts in two ways; if it is a profit the returns are magnified very fast, but if it is a lost the investor's account will be eroded in a quick manner too.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.