Financial Foreign Asset: There are 3 basic questions to consider while drawing a Forex investment strategy. These questions are about basic things which would not go away even if we know the answer. These other than posing questions, other factors are significant.
1. Drawdown of available resources.
Every Forex investor must factor in “available resources” when they ask about the risks to be taken, the desired returns or whatever they may term it to be, from the total available funds. If there is a shortfall in the available resources, there is every danger of a certain financial crisis. An example of this would be when a Forex investor has only 300,000 Dollars, and at the same time, another investor has over 1 Billion Dollars in their available resources. If there is a crisis in the availability of resources, the first trader would probably suffer losses.
Not only does this happen with 300,000 Dollars, but it happens in far larger amounts. Before one realizes it, it is a situation that could foretell a financial disaster. Now, don’t go thinking that fortune favours the related party. It works the other way. If someone has a size factor 10 times more than the other investor, he will probably shock the markets and have the good luck to come out tops.
A similar example can be custom-made furniture. The smaller supplier might have only a mere 30,000 Dollars in stock, but the bigger supplier would have over one Billion Dollars in stock. With the smaller supplier possibly only having a few customers, he will struggle to keep up his inventory and deliver his product on time. On the other hand, the bigger supplier can keep supplying the furniture simultaneously with no problem. This is also because the larger suppliers have Years of Commitments and possess much larger and stronger 200,000 plus strong sales forces.
2. Drawdown of funds position.
Funds can be any commodity on which Forex traders place their capital, such as Gold, Silver, Commodities etc. If these commodity prices go down, it indicates a weakening of particular commodities value expressed as a proportion of its market value. For example, if the price of Gold is moving up, it is worth lesser “real” (or Money units). If it was of a similar amount, the value would be more “real” and would soon reverse its downward trend.
In this example, this would mean that the price of Gold is going down. The price of this commodity is about 5 times more than it was two years ago, but now it is only $10.02; thus, the value has lowered about any future value. Much less likelyGold bars are going to drop in value. The price (and value) of Gold is determined by consumer demand and supply. When demand for this commodity does not exist, it is worth very little.
3. Drawdown of capital.
Simply put, this is the number of capital Forex investors fully expect to use on any particular investment. When they gather the information they expect, a “yes” is entered to be answered. If the cost is close to a predetermined amount (this is usually between 20-25 % of the invested price) or a loss is anticipated (on a specific period of time and usually within days or weeks at worst), a “no” is entered to be answered. To stereo with Forex investment, while it is important to know how much capital is at risk, it is also important to know the percentage of capital at risk and an estimated time by when this will be resolved. It is also important to remember that while a client may have $50,000 of invested capital at risk, the span at which this is recoverable is often very varied. Particular software trading packages can calculate and give you a range of expected time scales for various investments. Money management and risk management is another area that must be considered when investing in Forex.
While that was only a quick overview of the essential elements of understanding the Forex market, this was enough to give you a taste of how it is to look at this financial market. There are other factors, such as economic factors, which dictate the movements of currencies. Still, we have seen just some high-level principles to help you get a decent start on proper Forex Education. As with all other things in life, knowing how to do it properly is your key to success.