The topic is forex risk management but i need to hand in the Literature review

The topic is forex risk management but i need to hand in the and backgroud chapter on monday - Literature review Example The market also does asset valuation, arbitrage, raise capital, commercial transactions and invest in bond, stock or money. Besides, all these, the market also does forex risk management (Levinson, 2005). Forex has four interdependent spot markets where currencies are traded. These are the spot market, futures market, option market and derivatives market. Most of the time, these markets are availed by key actors in direct and indirect investments, such as, exporters, importers, investors, speculators, and governments. Trading is often done at interbank markets and financial institutions although the most common currency traded is the US dollars. Exchange rates are managed either in fixed rate, semi-fixed systems, and floating rates. Forex Risk Management Forex risk management is basically protecting a foreign currency from losing value against the domestic (Levinson, 2005) â€Å"currency before an export payment is received as well as enabling markets to attach price to risk, permit ting firms and individual to trade risks until they’d hold to what they wanted to retain† (Russell, 2011). ... Investors, either individual or institutional, who are motivated to and to gain capital are assured of this market’s system of resiliency in risk management (Russell, 2011). This is further supported by the institutionalization of formal markets where investors can immediately raise capital by selling shares at the stock exchange (Russell, 2011). The foreign exchange is a huge trading market that is geographically dispersed and exchanges could either be favorable or not depending on the measures of risk management employed otherwise it can be limiting â€Å"trade lot size, hedging, trading only during certain hours or days, or knowing when to take losses†(Milton, 2011). Forex trading may seem easy, but in all honesty so difficult, indeed. Traders would either experience sudden corrections in currency exchange rates; bewildering variations in exchange rates; susceptibility to market’s rapid change for profit opportunities; lost payments; delay in the confirmation of receivables and fees; discrepancy of bank drafts received and the contract price †(Milton, 2011). Tools for Forex Risk Management How should a trader control his loses? Expert in trading currency suggested that investors should think twice to set limits on potential â€Å"pressure or drawdown† one is willing to stake in trading. They also advise make use of â€Å"correct lot sizes and to start at lower amount depending on one’s level of risk tolerance (Easy Forex, 2011). But for experts, the best rule is to utilize small account balance. They also advised tract â€Å"overall exposure† to be abreast of the developments and correlation of currency pairs (Easy Forex, 2011). Gain complete risk control and define your opportunity when the right