Forex risk, also called currency or exchange-rate risk, is the possibility that moves in currency prices will change the value of your money, trades,...

Forex risk, also called currency or exchange-rate risk, is the possibility that moves in currency prices will change the value of your money, trades, or cash flows. It affects anyone dealing in foreign currencies—traders, global businesses, investors, and even travelers. When exchange rates fluctuate, profits can shrink, costs can rise, and portfolios can swing.

Forex risk comes in many forms: market price risk from volatile FX moves; leverage and margin risk that magnify losses; liquidity risk when a pair is hard to trade; interest rate and carry-trade risk; country and political risk; counterparty and settlement risk; and operational risks like errors or outages. Understanding these drivers helps you anticipate where losses could come from.

Managing forex risk starts with measurement—mapping exposures by currency, tracking volatility, and setting clear risk limits. From there, common tools include position sizing, stop-loss orders, diversification, hedging with forwards or options, and staying aware of economic news. The goal isn’t to predict every move, but to control downside while keeping your strategy intact.

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