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RISK MANAGEMENT

Stop Loss / Profit Take

Part of our trading discipline is to always enter a stop and limit at the point of trade entry. The stop and limit levels are calculated at the time of trade decision as part of the investment process.

What are the Greatest Risks to the Fund and Business?

Forexmax Limited does not hold client money and so funds are deposited with the clients’ counterparty/broker/custodian. Therefore there are minimal risks; however the following have been identified.

No guaranteed stop loss in the event of a major global disaster:

This event rarely happens and is unlikely, however the risk remains which is beyond our control. Having said that the optimum trade size that we place is the size that even with stop losses being triggered 3-5 times their values this will still keep us within our risk parameters.

For example:

Assuming we are long 1 million EUR USD at 1.4250 and we have placed a stop for this trade at 1.4200 our loss at normal market conditions would be 50 points however in the event there is a major catastrophe (war, terror attack) which leads to currency markets moving substantially outside their general movement trends we could in effect get stopped out at 1.4150 or even lower at 1.4100. We would be stopped out at the next available price which could be possibly 100 to 200 points lower than anticipated. This would be equivalent to 5 consecutive trades being wrong which is still within our risk parameters. This scenario is extremely rare and we have not experienced this so far. An example of this was back in Oct 1998 where intervention from the Bank of Japan caused USD JPY to drop some 1900 points from 136.35 to 115.77 over a 2 day period and some stop losses were triggered between 50-150 points outside their predetermined stop levels.

For record purposes, since inception non of our stop losses have ever been executed beyond normal market practice levels. 

In the event that the counterparty/broker/custodian going into liquidation:

All counterparties/brokers/custodians that we work with are FCA category A regulated institutions with normal capital adequacy requirements in place.

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Risk Warning: Our service includes products that are traded on margin and carry a risk of loss in excess of your deposited funds and may not be suitable for all investors.
Please ensure that you fully understand the risks involved.

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