Build EQUITY on Top of. .

Written by JS T. Alexander | 20 August 2009

FX Investment :     Proper Money Management Strategy

In today's investment world the financial instruments is currenctly having some difficulties building equity for investors with the financial crisis still hoovering around the markets. Although, the stock market has improved a lot since the opening of the year as most investors have made

some fairly reasonable amount of money from the stocks bought during the earleir times when everything was practically low. As the infamous oil investor Paul Getty did was to buy almost everything he could lay his hands on during such times of uncertainty when prices were so low. And as the ' oracle of Omaha ' Warren Buffet also did a few years back when he had invested over USD 3 Billion in the Swiss Francs and in some related foreign currency collectively outside of the United States and the Middle East by buying into companies he sees would make money for his investments.

In the Foreign Exchange Market, building equity on top of an inital investment could be more challenging for the investor rather than the trader, who happens to manage the trading aspect of the portfolio. A traders' commitment goes beyond trading in the market. Relatively, some investors who trades for their own accounts may not really be as confident. Although, the risk appetite for being involved in the actual trading is more for the excitement of it other than making a killing in the market. The risk that FX investors take in the market are risk funds that they can afford to lose and not hurt their lifestyles. Although, most investors would not want to do so, but rather try to find a suitable manager who would have the skills in building up the portfolio.

One of the better trading practises that an investor / trader can do is to apply the strategy of hedging positions. Which would also mean, to take and maintain a minimum of two (2) or more positons in the market, but not necessarily at the same executed time. The question there is, ' what if the intial trade is profitable? ' Then for obvious reasons, a hedge may not be necessary at all. However, in every market entry alone, one needs to consider the breakeven point on the price of the trade and if such trades has to pay for the spread or the commissions without mentioning the cost of rollovers for overnight trades thereafter. Making exit prices more relevant to make a net profit. If at any given time the direction
of the market goes opposite to the eixting position; only then that hedging should be part of the equation.

Take a clear note, that by hedging does not necessarily mean only having two contrary positions like buying the GBP and selling the EURO. While taking a buying position on the Pound is just like selling the US Dollar and while doing so taking a similar buying position on the USD/JPY or even the USD/CHF would be a logical approach since most trades are in US dollar denomination at the end of the trade upon settlement as they are dollar based trading. However, there is a word of caution to these strategies than meets the eye. And it goes beyond purely taking positions in the market. These are the most basic strategies one can learn on the earlier courses that most broker / dealers even present on the webinars.

While these learning process in trading are for newer traders who would try to offset their positions by learning, how to trade the FX market. There are a variety of ways that can be made, if only investors / traders would simply find the time to do some due diligence in the other methods of trading the Foreign Exchange Market. Where most sophisticated interbank traders manage to apply these strategies to make so much money for the bank. While the regular FX investors can do a similar action and by getting the right kind of information from reliable sources.

These techniques do apply well together;  with the proper leverage could build ' equity on top of the investment '  when trading the FX market. Only if and when such strategies can be executed properly and at the right time. As most executed trades and positions are relatively correct in some point of time; it is the wide price fluctuations that simply trigger stop-loss orders that has limited tolerance levels in sustaining a floating loss. The reason why most positions are relatively correct is that, the Foreign Exchange market has a volatile and benign cycle that it tends to have a price re-alignment towards equilibrium over certain periods of time. Although, some may take months and years to accomplish this as most traders and investors only look for shorter trades which is more speculative than corporations and bigger institutions would do. Leaving the investors to take more of the risk due to a lesser tolerance point and shorter trading periods in the market.

While contrary positions do make money, it is in the proper money management where such equity built during trading period, should be more than enough to pay off for losses incurred in the market. And that should not be made coming from the principal balance of the account. And this should always be a rule of thumb! When that happens, then one should always consider whether such trading activity in the FX market is right for the individual. Because it is a given fact, that losses do occur and FX trading at times may simply wipe out part or even the whole investment fund initially made when such adverse price fluctuations occur in the market at unexpected times. And equally so, when traders are reluctant to take heging strategies as a part of the success in trading this market.

It is a matter of having a better orientation as one of our investors relationship meetings conducted before have stated that when an investor finds a consultant that has the skills in trading this market, do not ever let the trader / manager go.

Foreign Exchange Trading in itself has been the main source of revenue for banks fo rso many years. If it wasn't lucrative enough for them, then why is it that these banks are still into trading the FX market until today. As a matter of record, most private banking services department of a major bank earns around 59% more / less on an average Foreign Exchange transactions. However, with more than the market share, some retail brokers have opened more facilities than ever before. Prompting investors to try and find the right trading partner for their investments. It is not on the facilities alone that a successful trade could be achieved but by knowing which facilities offer the accessibilty to information and execution of trades in secondary markets that are necessary in trading the Foreign Exchange market. Stated below is a partial list of banks that offer foreign exchange services to retail investors.