Learn Technical Analysis:

When it comes to explaining expectancy in the market, you must first look at financial analysis as well as technical analysis. These two types of analysis are usually combined together to gain information on future trades. The first one is related to supply and demand, while the second is related to the more specific aspects of the market.

Both of these, while related to expectancy, can only be used with some degree of certainty. This degree of certainty is in fact not very big. This is all based on probability. There is a main variable on both of these. This variable can be used in some instances as a tool on the trading market. In fact this technical analysis is a very powerful tool. A lot of people just starting out are afraid to use expectancy, but it is actually quite easy to understand. Expectancy is basically an equation; where expectancy equals the probability of a win or average win minus probability of a loss or average loss.
Technical analysis is the study of share prices. By researching the past performance of a share, we can gain an insight into how it will likely perform in the future.

To fully appreciate the power of technical analysis it is important to understand the basics. There are three key principles upon which technical analysis is based:

Everything is discounted and reflected in market prices.

Prices move in trends and trends persist.

Market action is repetitive.

Let’s examine each principle in detail.

The first and most important principle is that everything is discounted and reflected in market prices. All knowledge, regardless of type (fundamental, political, economical, psychological or other) is already reflected in market prices.

It can be time consuming studying fundamental information such as company financial statements, earnings and P/E ratios in an attempt to determine the potential for a share to rise in value. The real value of a share at any point in time is determined solely by supply and demand, as reflected in trades made at the stock exchange.

Technical analysts do not care what the underlying forces of a shift in supply and demand are; instead he or she is interested in what occurs to the price.

Why Hedge Foreign Currency Risk Exposure | ForexGen

International commerce has rapidly increased as the internet has provided a new and more transparent marketplace for individuals and entities alike to conduct international business and trading activities. Significant changes in the international economic and political landscape have led to uncertainty regarding the direction of foreign exchange rates. This uncertainty leads to volatility and the need for an effective vehicle to hedge foreign exchange rate risk and/or interest rate changes while, at the same time, effectively ensuring a future financial position.

Each entity and/or individual that has exposure to foreign exchange rate risk will have specific foreign exchange hedging needs and this website can not possibly cover every existing foreign exchange hedging situation. Therefore, we will cover the more common reasons that a foreign exchange hedge is placed and show you how to hedge forex risk.

A. Foreign Exchange Rate Risk Exposure.

Foreign exchange rate risk exposure is common to virtually all who conduct international business and/or trading. Buying and/or selling of goods or services denominated in foreign currencies can immediately expose you to foreign exchange rate risk. If a firm price is quoted ahead of time for a contract using a foreign exchange rate that is deemed appropriate at the time the quote is given, the foreign exchange rate quote may not necessarily be appropriate at the time of the actual agreement or performance of the contract. Placing a foreign exchange hedge can help to manage this foreign exchange rate risk.

B. Interest Rate Risk Exposure.

Interest rate exposure refers to the interest rate differential between the two countries' currencies in a foreign exchange contract. The interest rate differential is also roughly equal to the "carry" cost paid to hedge a forward or futures contract. As a side note, arbitragers are investors that take advantage when interest rate differentials between the foreign exchange spot rate and either the forward or futures contract are either too high or too low. In simplest terms, an arbitrager may sell when the carry cost he or she can collect is at a premium to the actual carry cost of the contract sold. Conversely, an arbitrager may buy when the carry cost he or she may pay is less than the actual carry cost of the contract bought. Either way, the arbitrager is looking to profit from a small price discrepancy due to interest rate differentials.

C. Foreign Investment / Stock Exposure.

Foreign investing is considered by many investors as a way to either diversify an investment portfolio or seek a larger return on investment(s) in an economy believed to be growing at a faster pace than investment(s) in the respective domestic economy. Investing in foreign stocks automatically exposes the investor to foreign exchange rate risk and speculative risk. For example, an investor buys a particular amount of foreign currency (in exchange for domestic currency) in order to purchase shares of a foreign stock. The investor is now automatically exposed to two separate risks. First, the stock price may go either up or down and the investor is exposed to the speculative stock price risk. Second, the investor is exposed to foreign exchange rate risk because the foreign exchange rate may either appreciate or depreciate from the time the investor first purchased the foreign stock and the time the investor decides to exit the position and repatriates the currency (exchanges the foreign currency back to domestic currency). Therefore, even if a speculative profit is achieved because the foreign stock price rose, the investor could actually net lose money if devaluation of the foreign currency occurred while the investor was holding the foreign stock (and the devaluation amount was greater than the speculative profit). Placing a foreign exchange hedge can help to manage this foreign exchange rate risk.

D. Hedging Speculative Positions.

Foreign currency traders utilize foreign exchange hedging to protect open positions against adverse moves in foreign exchange rates, and placing a foreign exchange hedge can help to manage foreign exchange rate risk. Speculative positions can be hedged via a number of foreign exchange hedging vehicles that can be used either alone or in combination to create entirely new foreign exchange hedging strategies.

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