How to Avoid Exchange Rate Risk
Forex trade or working with different currencies can generates some concerns about the risk for exchange rate modification. It is quite common that the currency quotes change over time sometimes in favor other against the trader interest. However, thanks to the development of indicators and price charts patterns and signals identification the exchange rate risk can be anticipated and diminished considerable when traders follow their technical analysis indications.
Trade the Currency Pair, Which You Have Studied or From Which You Have Critical Information
Forex trading is based on mathematical models, which are used to anticipate the next price moving direction. The exchange rate or currency quotes follows the free market essential rules. You must trade forex only on those currencies, which you have deeply analyzed and you are aware of all the social, political, and economic factors that influence its price quote. Price anticipation requires identifying market signals, price charts patterns, and indicators, forex traders follow the price and rely on previous studied patterns, which are repeated over time. Avoid guessing or trading by heart. Traders must follow their strategies and analyses, professional forex brokers never follow rumors or guess the future exchange rate.
Trade Undervalued Currencies
Trading undervalued currencies is as safe as you can go on forex trading; there are several undervalued currencies which price quote will only move higher over the near future. Those currencies are the best to get profits and reduce the exchange rate risk even if you want to hold them over time. Traders, who hold currencies over time, have to do daily technical analyses to avoid missing any reversal signs or an imminent price drops.
Hedge Your Bets
Hedging is the safest and only way traders can be sure the exchange rate will be equal or higher than their estimated price at the time when they would wish to sell it. Hedging is similar to an insurance; you buy for your bets to keep a minimum price to sell over time in case the exchange rate drops below any given quote at your maturity time. Hedging provides traders peace of mind by letting them know that no matter what, they already have a minimum selling price over time.
Take Advantages of Higher Interest Rate
Moving money from one low interest country to another with a higher and stable interest rate can make you get significant earnings and avoid any unfavorable interest rate variation on your forex trade. Look for Asian-Pacific countries with time deposits and saving account interest rate are up to 8 points higher than USA or the Eurozone.
Set Your Future Payment at a Fixed Exchange Rate or Forward Exchange Contract
Exchange rates are volatile, and the forex market is highly speculative. If you are buying futures or doing business in forex, it is recommendable to fix the exchange rate at which you will fulfill your financial obligations or do your payments to avoid any negative impact on the exchange rate variation.
Take Your Profits Early
Traders have to control greed and emotions. Traders never must wait until an exchange rate soars or plunge to buy or sell it. Taking your profits after they have grown but no reached the maximum point can decrease your risk of losing a price momentum an experience a price reversal. The same applies to buying never wait until the price falls below the floor since you could miss a great opportunity to buy low and sell high.