Page 93 - Ultimate Guide to Currency Trading

If you have long-term trades and you are now in a losing situation, take a look at your broker's
reports before closing out and realizing the loss. If your brokerage is good, it will most likely have very
good advice for you as what to do with your positions. It might be that brokerage analysts are
recommending adding to the position as they see the new price change as short-term and temporary.
Either way, proceed with caution!

What to Do When the Market Crashes

When the market risk appetite jumps for whatever reason, there will be a typical reaction in the FX
markets. The best thing to do is to first know beforehand what currency pairs react strongly to this
increase in market risk appetite. Second, you need to know when the risk appetite has changed, or is
about to change.

Consider Your Positions

If the risk appetite of traders has changed for whatever reason, then you will need to re-evaluate your
positions. If you are long the AUD/USD and short the EUR/SEK and the markets suddenly take a turn
for the worse, then most likely you will be in a loss situation. If you have been building your positions
over time and with a smaller amount of your avail-able margin, then a downturn in the market should
in no way wipe you out. With a bit of care and risk management, you should be able to keep the
account liquid enough to withstand even very drastic downturns in the market.

If you are in the risk trades such as the AUD/USD and EUR/SEK, and the market goes against
you in a very dramatic way, you might want to consider putting more money in the account to buy
more into those currency pairs that have lost so much. In any case, some of the pairs will be paying
very good interest. If your average cost of the AUD/USD is 102 and all of a sudden bad news comes
out and it falls to 97.75, then you have a wonderful opportunity to buy into an excellent interest-
paying pair at a lower price. Depending upon how much you can add to your account, you can double
or triple your exposure to the long AUD/USD or the short EUR/SEK in such a way as to add to your
bottom line significantly when the market decides that it has had enough and it reverses due to the
bargain hunting and bottom-feeding of so many of the market participants. Remember, markets
always come back! If the market is very, very beat down and an interest-bearing currency pair such as
the Canadian/USD or the AUD/USD or the New Zealand/USD falls to the point of being grossly
undervalued, then by all means, buy into as much of the pair as you can!

This is a situation of "beep-beep, back up the truck!" Do whatever you have to do to get as
much as you can off the beaten down currency. This is an awesome opportunity to get into a currency
pair that can turn into big profits. In the meantime, when you are waiting for the markets to turn
around, you will earn the interest on the account. If you have a 50:1 margin, and you commit one-
third or two-fifths of your account to the trade, then you will earn 70 to 90 percent interest in your
account on a yearly basis (not including any gains in the currency pair!).