The following topics highlight common situations that FX derivatives traders come across when risk managing their positions.
Traders must learn the characteristics of the markets in which they are operating. Every market is different and this guides how traders interact with the market and how positions are risk managed. Within foreign exchange there are enormous differences between the spot, forward, and derivatives markets in different G10 and emerging market currency pairs.
G10 spot markets “tick” (change) many times a second. They are very fast, simple (in the sense that the market consists of a single contract per currency pair) markets in which high-frequency algorithmic trading plays a large (and increasing) role.
The OTC FX derivatives market moves more slowly than the FX spot market for several reasons: