Forex Trading Risk Management 3

Question 1

What is 'correlation risk' in forex portfolio management?

Accepted Answer

Risk from trading currencies with similar economic drivers simultaneously

Answer

Correlation risk arises when multiple positions move in the same direction because the underlying currencies share economic relationships, magnifying losses.

Question 2

A trader uses 100:1 leverage and their position moves 1% against them. What happens to their margin deposit?

Accepted Answer

It is completely wiped out

Answer

With 100:1 leverage, a 1% adverse move equals a 100% loss of the margin deposited for that position, wiping it out entirely.

Question 3

Which order type guarantees execution at the exact specified price regardless of market conditions?

Accepted Answer

No order type guarantees exact fill price

Answer

In fast-moving or gapping markets, no order type can guarantee execution at the exact price specified; slippage can occur on limit and stop orders.

Question 4

What does 'position sizing' help a trader control?

Accepted Answer

The dollar amount at risk on any single trade

Answer

Position sizing determines how many units or lots to trade so that the monetary risk per trade aligns with the trader's predetermined risk percentage.

Question 5

A trader doubles their position size after every losing trade to recover losses faster. This strategy is known as:

Accepted Answer

Martingale

Answer

The Martingale strategy involves doubling position size after each loss, which can lead to catastrophic account blowout during a losing streak.

Forex Trading Practice Test

Forex Trading Practice Test

Forex Trading Risk Management 3