Currency warrant basics
Let's face it, without knowing the basics and fundamentals of Forex, it's just not possible to be successful at it. It's like a trying to become a high speed bike driver, without knowing how to handle a bicycle in the first place. Before investing our precious money into anything, it bodes good to do some research, enquiry and nosing around before making a decision. Remember, everybody is not perfect. The existing persons, who seem to have the forex market at their fingertips, were also once upon a time struggling to get a hold. Patience, perseverance, hard work and a willingness to make and learn from mistakes has brought them to their present position of dominance.
So, what should one do until one doesn't get hold of a good grip in the basic know how of Forex. While you are in a learning phase and you are proceeding by hit and trial method, one of the ways you can protect your loses in the Forex market is with the help of currency warrants.
What is it?
Currency warrant is like an insurance policy for your investments in the forex market. It helps you protect against the volatile market changes. It is just like your forex currency. It has its own leverage, time of expiry and exchange rate.
How it helps?
Let's assume that there is a particular currency which is extremely volatile to which you are drawn due to the high possibility of investment returns. So, you create a currency warrant and then speculate on how the currency is going to move in the forex market. If your instinct is correct then you end up making a profit. If it goes south, well the currency warrant will protect you against making further losses.
Thus, currency warrant proves to be an important financial instrument which protects you against making loses in the forex market. This method is also known as hedging of your funds. It's like creating a cocoon around your investments in the forex market to protect it from any trouncing.
Another important thing is the pricing of the
currency warrants. The currency warrants are priced at the prevailing market rates. They can also be used for exchanging one currency for the other.
When is it best used?
A currency warrant is best used when the market is highly volatile with severe fluctuations in the exchange rates. In such situations, it's possible that you can sustain massive losses even during a single hour of trading, which can then be protected by using a currency warrant.
Thus, if used properly, currency warrants are a very important financial tool in the hands of the investor, protecting from risks and helping in better speculation of the market. There are different types of currency warrants available in the Forex market. There may be different reasons of one investing in a particular currency warrant. For e.g. situation, need or one's prediction of the way market is going to fluctuate on the basis of experience.