The market may not be going in the direction you wish all the time. When that happens, we lose money. And we represent the amount of money you may lose with a letter R. We know that this is the largest amount you may lose if the investment turned bad. When we talk about risk, we also consider the potential return in an investment. We estimate the relationship between the two with a ratio in R. In fact, you might already know and actually be using such a method in other aspects of your life, you just need to be conscious of it and apply it to your assets management.

When you are given two choices, how would you come up with your decision? For example, there are two different methods for you to go home, one is to go on the high way, and another one is to go through the street. If you choose the high way, you may be able to get home within 30 minutes if everything is smooth. But there is a possibility that there is a traffic accident and you would need two more hours to get home. Choice number two is to try the streets with fewer cars. There are many traffic lights and whatever the traffic is, you would need 45 minutes to get home.

You would begin analyzing the two options and decide whether getting home 15 minutes earlier is worth the risk of being trapped in traffic jam for 2 hours. Similar decision making process can be seen in investment managements. The important reference is the ratio between the expected return and the potential loss you may pay. The ratio must be high enough to justify the actions.

The best investors use this return to risk ratio to assess their investment opportunities. A seasoned professional investor would always start an investment consideration with the possible amount of money he could lose in a particular investment. And we denote the amount by R. Let say the expected return is 3 times of the risk you bear, we say this is a 3R opportunity. Whether we are talking about stock, mutual fund, property or any other investment vehicle, we use this same system to categorize them. The assets are just the tools. What we concern is the money. So a 2R in stock market is in substance the same as a 2R in the property market. They all mean an opportunity to earn twice the amount of money you may lose. The below example would make it clear.

The first example is the situation where you have already decided to buy a house with a compromised price and sell it quickly thereafter. This is a quick cash transaction. You have decided to use USD5000 to buy a USD80 000 house. The amount USD5000 is the risk factor R which is the largest amount you can bear to lose. You wish to sell the house with a USD100 000 price. That is, a USD20 000 profit. This will be a 4R opportunity, because your planned profit is 4 times of the risk you bear.

Let’s say it turned out the market didn’t go up as much as you thought and you sold the house with $90,000. You made a profit of $10,000. So, we say the investment becomes a 2R one because the profits is 2 times the risk factor.

Forex has long been touted as the most liquid market in the world. If your new to this market, or even looking to increase your forex trading to a daily schedule, then you won’t want to miss this special day trading system.

Did you know that you can find a market that is open 24 hours a day? The market is called Forex market and if you go there, you can’t find services, commodities and goods. The Forex market is the place where different kinds of currencies are traded. In every trade, two currencies are involved. For instance, you can sell your Canadian dollars for Euros; or you can pay Japanese Yen for US dollars. Forex rates or exchange rates can change unexpectedly. You need to monitor these exchange rates in order to determine if the price of a certain currency increased or decreased.

Changes in the Forex market usually occur quickly and so it is important for traders to keep track of the market. Political and economic events can influence the changes in the Forex market. If you want to determine whether you’re gaining or losing in Forex trading, this article can help you with the calculations.

The Forex investment is greatly affected by the exchange rate and in order to understand the relationship between the two, you should also be familiar with Forex quotes. Like the currency pairs, Forex quotes can be found in pairs as well. Here is a very good example:

1.Suppose the currency pair is USD (US dollar) and CAD (Canadian dollar)

The Forex quote for this pair is USD/CAD=170.50; this is interpreted as ‘every one US dollar is equivalent to 170.50 CAD. The currency found at the left side is known as the base currency and it is always equivalent to 1. The currency found at the right side is called counter currency. The stronger currency is always the base currency and in this case, the USD. The Forex quote’s central currency is USD and so you can find it in most Forex quotes.

How can you determine if you’re earning profits or not? You can use another example.

2.This time use EUR to USD. Assuming that the Forex rate is 1.0857; in this example, the USD is the weaker currency. If you bought 1,000 Euros, you will need to pay $1,085.70. After a year, the Forex rate was at 1.2083 and this means that the Euro’s value increased. If you decide to sell the 1,000 Euros now, you will get $1,208.30; now, in this transaction, you gained $122.60. What if the Forex rate a year after was 1.0576? This means that the Euro’s value weakened. If you still decide to sell the 1,000 Euros, you will only receive $1,057.60 which means that you lost $28.10; did you get it?

Forex trading involves a lot of risks just like mutual funds and stocks. The fluctuations in the exchange market are responsible for such risks. Low level risks like government bonds in the long-term can give returns but are quite low. If you want to get higher returns, you need to invest in Forex trading but you need to face higher level risks.

You must set financial goals for the short term, as well as for the long term. By doing so, it will be much easier to balance the risks involved and the security. You will be able to conduct your trades with ease and comfort. Make use of all the available Forex trading tools so that you can make wise and profitable trades. After reading this article, you can already calculate if you’re gaining profits or not.