Instructions and Risks of Forex Transaction

The clearing method adopted by transaction is T 0. To invest in foreign exchange, you must learn basics of foreign exchange. If open a forex account for transaction, you must know the instructions, risks and other factors of it, which is new to some friends. So let’s learn about them together.

1.    Instructions of Forex Transaction

Generally, instructions of forex transaction can be divided into two types: market transaction and entrusted transaction. Market transaction means to execute immediately according to the current quotation of the bank. In entrusted trading, commonly known as consignment transaction, investors can first pass the trading order to the bank. When the bank's quotation reaches the ideal exchange rate of the trader, computer system of the bank will immediately execute the transaction according to the commission instruction of investor. The convenience of entrusted transaction order is that customers do not need to keep an eye on changes of forex market at all times, which saves a lot of time.

However, customers need to be cautious when using entrusted trading orders, especially when the entrusted trading order without stop loss when opening a position. The foreign exchange market is changing rapidly, and the rash use of entrusted transaction orders may bring a lot of risks.

The so-called "stop loss" is a consignment trading order that automatically closes a position. When the market exchange rate changes in the direction that is not conducive to the position you have opened, you can automatically close your position with this method. For example, if you bought the British pound at 1.9000 and cannot bear the loss caused by the British pound falling below 1.8900, then you can set your stop loss at 1.8900. Under normal market conditions, when the exchange rate drops to that level, the banking system will automatically close your long GBP position.

2.    Risks of Forex Transaction

Affected by various factors, the forex rate is unpredictable. Investors may earn profits or suffer losses when conducting forex transaction, depending on whether the inference of the market conditions is accurate, which is the so-called “market risk”.

When certain emergencies occur, the exchange rate may fluctuate rapidly for a short period of time. The bank may not guarantee that the transaction will be completed in accordance with the market price instructions and entrustment orders you send to the bank or at the price you specify. The inability to guarantee a deal or a deal at the price you specify is likely to bring you a profit, but in most cases it will bring you a loss. That is the so-called “transaction risk”.

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