Tips on Interest risk in forex trading

Interest rate risk: The forex risk that a trader faces in his business, caused by price fluctuations in the forward spreads, coupled with mismatches in the forwarded amount as well as gaps in maturity levels during transactions, is called interest rate risk and is similar to forex credit risk. This type of risk is directly related to currency switches, forward outright, futures and options. Traders attempt to reduce this type of risk by setting a limit to the total volume of mismatches. One of the common ways is to divide the mismatches depending on their maturity dates in two categories: up to six months and over six months. All transactions in this market are computerized including the dates of delivery, gains or losses. For more accurate forecasting of market trend and its subsequent impact on outstanding gaps, it is imperative to have knowledge of analyzing the interest rate scenario on a daily basis.