Forex Risk Management

Risk management is not done in cases where the most attention is required while doing business in the Forex markets. It is the necessity of an effective use of risk management by proportionately in the monetization process that is not taken into account, appropriately in terms of the investor’s planned leverage. As Exbi, our advice to applications for forex business; For their collateral in the applications, all the money does not exceed 10% of the sites in the account.

What should we pay attention to when choosing a Forex company?

What should we pay attention to when trading forex in foreign institutions?

EURUSD RISK MANAGEMENT EXAMPLE

Examples of Risk Management Transactions of the Investor Choosing 10:1 Leverage Ratio:

Initial Margin (Margin)/Total Portfolio Value: 10%

Examples of Risk Management Transactions of the Investor Choosing 10:1 Leverage Ratio:

Initial Margin (Margin)/Total Portfolio Value: 10%

Suppose the trader is investing in a forex account by depositing $11,200 in his account,

Assuming the current price is 1.12000 in EURUSD parity, the following collateral situation will occur for the investor who opens a 0.10 LOT Buy/Long/Long position.

Balance: $11,200

Initial Margin (Margin): $1,120

Free Margin (Margin): $10.080

Margin Level: 1000%

In this case, at what price level does the EURUSD parity reach, the investor reaches 75% Margin Call and 30% Stop Out?

The investor, who enters the transaction with an Initial Margin (Margin) that corresponds to only 10% of his portfolio, will risk his portfolio and start to lose value if the prices in the EURUSD parity appreciate in favor of the USD. For the investor to reach 75% MC and 30% SO, the money in Free Margin ($10,080) must first be “reset”. In this case, the Margin Level of the portfolio will decrease to 100%. If the movement in favor of the USD continues, the investor will be in the range of serious risk levels.

In case the Margin Level drops to 75%;

Investor gets Margin Call. In order for this situation to occur, it is sufficient that 25% of the Initial Margin (Margin) melts in addition to the balance in the Free Margin, which is already zero. $1,120 (Initial Jul.) x 25% = $280

So in total, $10.080+$280= $10.360 in case of loss, the account will reach 75% MC level.

In order for this situation to occur, the EURUSD parity must decline to 0.08400.

1.12000-0.08400= 1.0360 (1,0360 x 10,000 Units) = $10.360 In case the Margin Level drops to 30%;

The investor becomes Stop Out and his open position is closed by the system. In order for this situation to occur, 70% of the Initial Margin (Margin) must be melted after the balance in the Free Margin is reset.

$1,120 (Initial Margin)x 70%=$784

So in case of losing $10.080+$784=$10.864 in total, the account will reach 30% SO level. In order for this situation to occur, the EURUSD parity should regress to the level of 0.0336.

1.12000-0.03360 = 1.08640 (1.08640 x 10,000 Pieces) = $ 10.864 In summary, if the investor loses $ 10.864 of the total $ 11.200 in her portfolio, she will only buy SO

Conclusion:

The investor, who does not open a position more than 10% of her total portfolio, is thus not affected by intraday fluctuations and has created a movement area of 10,864 pips for her portfolio.

Initial Margin (Margin)/Total Portfolio Value: 100%

Initial Margin (Margin)/Total Portfolio Value: 100% Assuming that the investor opens a forex account by depositing $12,000 in his Account, the following collateral situation will occur for the investor who opens a 1 LOT Buy/Long/Long position, assuming the current price is 1,1200 in EURUSD parity. Balance: $12,000

Initial Margin (Margin): $12,000

Free Margin (Margin): $0

Margin Level: 100%

In this case, at what price level does the EURUSD parity reach, the investor reaches 75% Margin Call and 30% Stop Out?

The investor, who enters the transaction with an Initial Margin (Margin) corresponding to 100% of his portfolio, will risk his portfolio and start to lose value if the prices in the EURUSD parity appreciate in favor of the USD. The Free Margin was initially zeroed as the trader used all of his money to open positions. Since this brings the portfolio to a risky level from the very beginning, it will not be difficult to reach 75% MC and 30% SO levels. Even small volatility can cause the portfolio to be stopped.

In case the Margin Level drops to 75%;

Investor gets Margin Call. In order for this situation to occur, it is sufficient to melt another 25% of the Initial Margin (Margin) in addition to the balance in the Free Margin, which is already zero.

$12,000 (Start Jul.)x 25%= $3,000

If only $3,000 is lost in total from the portfolio, the account will become 75% MC.

In order for this situation to occur, it is sufficient for the EURUSD parity to decline to 1.09000.

1.1200-1.0900= 0.03000 (0.03000 x 100,000 Pieces) = $3,000

In case the Margin Level drops to 30%;

The investor becomes Stop Out and his open position is closed by the system. In order for this situation to occur, it is sufficient that 70% of the Initial Margin (Margin) melts in addition to the balance in the Free Margin, which is already zero.

$12,000 (Initial Margin)x70%=$8,400

If a total of $8,400 is lost from the portfolio, the account will go to 30% SO.

In order for this situation to occur, it is sufficient for the EURUSD parity to decline to 1.0360.

1.1200-1.0360=0.00840 (0.0840 x 100,000 Pieces)= $8400

In summary, $8,400 of the total $12,000 in the investor portfolio will become SO, losing $8,400.

Conclusion:

The investor, who uses 100% of his total portfolio to open a position, will only stop at a price movement of 840 pips and his position will be closed. Thus, with this risk, the investor could not create room for action in order not to be affected by intraday fluctuations in his portfolio.

Conclusion:

The investor, who uses 100% of his total portfolio to open a position, will stop and close his position even in the price movement of 4340 pips. Thus, with this risk, the investor could not create room for action in order not to be affected by intraday fluctuations in his portfolio.

Note: The “Spread Spread Cost” is not included on the default examples, as the Spread Spread in the parity pairs we offer as variable spreads changes rapidly depending on the liquidity in the market.