Four Factor Forex Limited

Forex Management Helps You To Manage Your Finance Much More Efficiently

Whether you come across currency exchange issues in your private life or business life it is normal to feel that it is quite a challenge to achieve success at a low price. Everyone I meet has a tale to tell usually about a private trip overseas when the challenge of changing currencies includes long lines at airports, staggering fees and incomprehensible gaps between buying and selling currencies. Challenges to small and medium sized businesses are equally large to the extent that poor management occasionally leads to threats to the whole business operation.

In short, its time that we all got to be more familiar with forex management which I prefer to call 'currency exchange management' or, even better, global cash management. Forex is an abbreviation for foreign exchange but world is becoming so integrated in business and privately that the term 'foreign' is no longer helpful in guiding decisions about currency management. We may work for an Indian company which buys a tractor in USD from a company in South Africa. You see? The relevance of a 'foreign' currency in this discussion breaks down.

I guess we are stuck with 'forex' for the time being in popular language. 'Forex' is simply Cash in different currencies and Cash is one of the three broad financial assets - Cash, Bonds and Shares. Each of these three financial assets have important roles within the financial system. Each of them has distinct characteristics of risk/return, liquidity, term of investment, and association with interest rates.

The financial system itself has become a popular topic of interest given that the Global Financial Crisis of 2008 and onwards has touched our lives very closely through its impacts on recession and very low interest rates associated with fragile financial systems around the world. There is a heavy trend towards integration of international financial systems although many very large countries have embryonic systems and institutions.

Many people now grasp the importance of diversification of financial assets within their investment portfolios and managed funds. In particular, bonds and shares are highly diversified geographically and by industry providing valuable protection against unnecessary risk while having appropriate exposure to more risky financial assets.

When we apply the same principle to our Cash holdings we find that many businesses and individuals are not active in what we can now see as their global Cash. Usually there is a concentration of Cash in the 'home' currency. Our argument is that this is a very risky strategy because you are now 100% exposed to your home currency. This is fine if you feel very confident that your home currency is going to outperform all other currencies - a very difficult position to defend. Would it not be better to apply the principle of diversification to Cash as well?

Large companies already accept the wisdom of Global Cash Management operated through Treasury Departments with relationships with banking institutions. The same benefits are in principle open to individuals but with much smaller funds the best approach is to use a forex platform with competitively low fees.

You might feel that cryptocurrencies will solve the problems by creating one single global currency. That is not yet an option and seems very far off. In the long meantime managing cash will rmain and issue of understanding currency exchange markets and applying out knowledge to better outcomes for our attempts.

These issues are included in our discussion and reports and website.

Forex Risk Needs Managing – Words of Encouragement
September 18, 2021
Introduction – Forex Management, A Life Skill Worth Gaining
This is quite a long article about what I think is a very serious subject for our lives. Most of us know what risk is and the different forms it can take in daily life which we choose to deal with or ignore. But my opinion is that not enough people try to understand about financial risk and this article deals especially about foreign exchange risk – ‘Forex risk’.
Serious topics need time to present. I want to encourage you read and think about the issues. The issues may seem complicated, but the potential rewards come in the form of both financial rewards and in the form of pleasure and satisfaction. My motivation for writing these articles is to share knowledge and experience – a motivation associated with ‘giving back’ to the communities which gave me many opportunities. I also like to test my skill in designing Forex positions to make profits and share my views in a website business. I do not normally manage actual money on behalf of other people.
I have also learned that there are techniques for managing Forex risks. You have the control over the currencies you choose to be exposed to and the degree of exposure. Ignoring your Forex risk means you will have no idea what risks you are taking. If you have exposure only to your domestic currency this does not means that you have zero risk. It means that you have 100% exposure to your domestic currency – when your domestic currency falls in value you lose by the whole amount of the depreciation against other currencies. You will still have the same amount in domestic currency but you could have avoided the losses in Forex terms and been much better off than managing passively.
If I Only Had A ………….
While Forex has its own characteristics, just as Housing markets and Commodity markets and all other markets have, the public is often subjected to a view that in respect of Forex, the public is entering a world of danger, mystery, high probability of loss and signs saying “do not go there”. Four Factor Forex (our company) is determined to bring this wrong view under the spotlight and to encourage you to understand the Forex market for what it is and to use it to your advantage, just as you engage with other markets every day of your life even in Lockdowns.
“Lions, tigers and bears. Lions, tigers and bears.” Quoted from ‘The Wizard of OZ’ as they enter nimbly the Haunted Forest. From childhood we are confronted with messages of dangerous situations, and occasional hints and tips about ‘fight or flight’ in case you ever have to deal with a risky set of circumstances. Of course, we learn through life that risky sets of circumstances are ever present, and we also learn how to deal with them from the very minor to the very major risks. We develop defences. We develop armour. We learn about the pros and cons of risk and the tools to build strategies to cope. Occasionally we are protected from risky situations and try to understand the motives of ‘mature’ people who protect us from risk. In time we learn that one of the transitions to adulthood is to take much more responsibility for managing risks onto our own shoulders.
We learn to drive fast cars, ride wild horses, chop down trees with an axe or a chainsaw, kill animals with guns and other weapons, free dive down 100 metres plus, go Bunji Jumping, climb incredible heights with extra oxygen, go to war in the navy, air force or army, become parents, ski from the top of mountains, train lions, get married, go on dates, have plastic surgery, travel to space or fly in a plane and so on and so on. Please forgive me for pointing out these obviously risky activities which people engage in as part of their ‘normal’ lives. We learn to manage risks and not just ignore them.
However, the very strong negative message that usually surrounds managing forex issues needs to be countered because forex risk can be measured and managed just as the people do in the activities just mentioned. This article is about presenting many of the positives of managing forex markets and issues which can be enjoyable and thrilling without leaving your own desk. It won’t be quite the thrill as skiing from a mountain top (I’m told) but if done properly can be enriching as well as fulfilling and enjoyable. I believe that managing forex ought to be one of the life skills we learn in that crucial stage of transitioning to adulthood and this article is a presentation of the pros and cons and positive conclusions.
This stage of transitioning to be an adult is itself risky. When a ‘b***y’ chick reaches a certain age, it is time for it to take a leap from its seaside cliff nest to fly towards the ocean, having never flown before. The male parent accompanies the child but cannot help its chick to fly and land safely. What a dramatic example of young creatures being forced/encouraged to face risks in order to make the transition to be a full adult creature. Without this life skill there is no future life for a bird - which cannot fly.
Some finance textbooks and some regulatory authorities believe wrongly that people should be protected from Forex risks because it is very difficult to manage them. This is a proposition which must and should be very strongly challenged. People are better off in managing their own affairs because they have the best knowledge of the circumstances surrounding a decision which affects them closely. The previous statement comes with the proviso that the knowledge of the person is as complete and understood as humanly possible. Such considerations guide our public policies in relation to health care, child custody, financial advice (?), mental health advice, parenting advice, legal advice and so on. Western ‘civilisation’ puts a great deal of weight on individual responsibility (adults) and individual accountability (adults).
But how do people develop a mature and trustworthy approach to managing Forex related decisions? Our company does not have all the answers to this question but it is the question which justifies our existence and mission. In most countries we see a need for greater knowledge and teaching about managing Forex and therefore it is logical that we have set out to provide that within a website business.
Four Factor Forex follows four crucial factors behind a currency and gives that currency a score for each factor. We then add up the scores for all the currencies we analyse and compare and sort them from worst to best. The results give us a first cut at which currencies appear to be relatively attractive or unattractive. The details of the whole process are provided on the website for reference. But the relevance here is to point out that a key tool in managing Forex is to have some idea of or some source of integrity which provides the relative attractiveness of currencies. Managing Forex well involves developing a process for identifying transactions you wish to make (whether personal or commercial), weighing up the merits of alternative strategies, and implementing them with confidence. You should enjoy the process and not end up a ‘nervous wreck’.
We outline the stages of a process next. Before that a couple of comments might be helpful about the changing environment for business and people in their daily lives. The Pandemic is to some extent delaying or partly concealing a strong major trend. Managing Forex is fast becoming an essential skill for adults and not just a passing interest. The world economy is booming and like no other time in history we have nearly every country in the world, certainly all the large ones, committed to freedom in world trade and greater freedoms in movement of resources and people. In short, this is a unique moment in history with unrivalled opportunity for personal and business development. Increasingly people will realise this fact and want to take their part (like a b***y chick). Again, forgive me if you see this as more or less obvious. But it is now, and increasingly there will be expectation that Forex Management is part of your skill base – rapid growth in world trade, in travel and tourism, in financial transactions and new businesses which require multiple currency analysis, currency speculation, investment and currency hedging. This is the world path we are already travelling along within a context of the spreading internet and online businesses.
You may be thinking that in due course Forex markets will not be needed because a single currency asset may be developed which removes the need to have national currencies. Single currencies are difficult enough at the present time since we have the Euro as an example of the degree of political unity required to tie in only 27 countries. There are nearly 200 countries in the world. It is theoretically possible to have a single global currency ‘the Eartho’ but realistically this may be so far distant as to be ignored for now.
An alternative candidate might be cryptocurrency but a successful adoption of crypto is going to take a while, but even then, it will strike against the same logic as facing a single currency which is how to decide how much a USD Bitcoin is worth in South African Rand. The currency exchange rate will still matter between crypto currency regimes. Again, the practicalities required appear to be far distant from being met. Countries are not going to give up their national currencies without having to give up some degree of control over managing their economies. It could happen but even then, it will likely take many decades. Forex markets are here to stay – in the meantime.
This ends our introduction which has presented our case for encouraging people to learn a new, enjoyable and valuable skill – Forex Management.
First thing you will need before you strap into a Forex Management adventure is a process.

Forex Management Process
I may have overstated the risks of Forex and you may have already switched off. I hope not. I would like you to reach the point where you start to enjoy experimenting with your process and practising your strategies until you gain the confidence to go ‘live’. Think of this activity as potentially an extremely enjoyable one, with a fresh start every single day and solid opportunities to manage your Forex exposures very well. You will experience a wide range of emotions but in time this range should narrow down to the more positive ones as your experience grows. The feeling that you are in control needs time to develop and I do not mean in complete control, but in control of your strategies and next steps.
It is useful to think of the required process as a loop. Because forex markets are open 24/7 and human beings are not, the best processes are those which can be repeated by more than one person to achieve a similar result as if you were awake. I mention this issue at the start because it is not always easily dealt with, and we need to learn by doing and having a hierarchy of decisions. It is common to close out a contract and regret that decision with the benefit of hindsight. Similarly, it is common to regret not closing out. It is the challenge of wrestling with these two issues which I find particularly intriguing and absorbing. You will find that operating within a Forex environment offers a great deal of flexibility, not only in timing transactions but in managing strategies through time to your advantage. You do not have to be locked into only one approach, into one or two financial institutions and do not have to be forced into paying high fees in order implement your strategies.
Essential Steps for Your Process
1. Determine Your Objective
a. Type of Transaction
b. Timeframe
c. Trading Idea, Investment Idea, Other
d. Currency Pairs involved
e. Amount of funds involved

2. Determine Your Risk Tolerance
a. Zero Tolerance
b. Minimal Tolerance
c. Managed Tolerance – Leverage
d. Maximum Tolerance for Risk

3. Determine Your Opinion on Selected Relevant Currencies
a. Check Relative Indicators of Your Key Currency Pairs
b. Choose provider(s) of views on Currency Pairs
c. Check degree of conviction of views

4. Determine Your Implementation Strategy
a. Preferred Base Currency
b. Forex Platform to be Used
c. Target Currencies by Amount
d. Determine Leverage
e. Check Your Account Balance and Required Margin
f. Top up Account Balance if Required Margin is too High
g. Check implementation strategy completed

5. Determine Your Monitoring Strategy and Completion
a. Determine Frequency of Monitoring progress
b. Determine Process for Evaluation of progress
c. Consider Your Options and Reaction to Them
d. Signals for Completion of Transaction(s)
e. Review Your Process
Unlike Bunji Jumping a great deal of the risk management responsibility in Forex Managament lies with You and not with the provider. Consider the safety steps which a company must go through to run a Bunji Jumping business on a sustainable profitable basis and you would agree that the foregoing process is not as complex as it may look. Like many activities which people enjoy there is a certain amount of commitment to the basics and a great amount of practice required to get the most out of actual Forex Management. Ask any golfer if he/she needs to practise.
At this point you may think that Forex Management is not for you. But consider the advantages listed earlier and the prospect of greater advantages into the future before giving up. Also consider that you are already exposed to currency risk so isn’t it better to try to understand and to manage that risk than simply ignore it? For example, it is wrong to assume that having currency exposures in your own domestic currency means that you have no currency exposure. This is a false assumption. Consider the case of a person in Europe within the Euro Area with 100%, say, exposure to Euro assets and liabilities. Political tensions often cause unexpected movements in a currency relative to other currencies. If you feel that you can anticipate or fear an upcoming tension and its impact on the Euro, then it makes sense to take evasive action to try to avoid Euro losses and to make gains in other currencies relative to Euro.
Forex Management is therefore not only enjoyable to become involved and experienced in, but also practical and rewarding as well. But it does involve designing and adopting a process which suits you and which fulfils the specifications it is designed to meet.
Examples of Types of Forex Transactions
Currency investors
Currency analysis is not currency advice. It is acknowledged that forecasting accurately the likely trend in currencies is difficult and investment professionals understand this fact and tread gingerly. But as in other investment spheres participants attempt to build up a degree of confidence in particular views and invest accordingly, expecting their views to pay off within a timeframe of at least several months. Typically, currency investors are expecting to add to portfolio returns at the margin by tilting their currency exposures in a way that reflects their confident views. Occasionally market values may seem to them extreme and on those occasions the size of positions might be increased substantially.
Currency traders
Currency analysis is not investment advice to traders but it is useful information. A trader may build up confidence in a view of a trend but expect there to be limits around the trend which provide ‘buy’ and ‘sell’ opportunities. Traders have their own antennae and information resources which are used to take sometimes very large positions which are expected to pay off over a matter of days or even hours. Typically, the positions will also be leveraged meaning that the risk/return arithmetic is very much magnified. A correct position will be rewarded very handsomely while an incorrect position will incur substantial losses.
Market professionals know and accept the degree of risk being taken on board. But increasingly market participants are attracted to the prospect of high returns without a real appreciation of the risks. Currency analysis platforms emphasise again and again about the risks to portfolios of currency traders.
The services provided by our company should be useful to professional currency traders as another source of information and a check against their views. Preventing potential losses is just as valuable as contributing to potential gains and both add value.
Clients who Export
Exporters frequently wish to have well researched views on currency pair trends. And the behaviour of currency markets often tempts exporters to manage their foreign exchange exposures to add value to a fully hedged position.
Consider a Japanese exporter who is expected to receive USD100 million in 3 months’ time and currently has no hedging in place – he is fully exposed at USD100 million versus the Yen. The Yen now falls by 10% in the first month versus the USD. Does he wait another two months in the hope of further Yen weakness? Or does he move to at least partially cover the financial gains already made? These are the day-to-day decisions faced by exporters to a greater or lesser degree.
Large players will perhaps have their own currency analysis exposure management team. But many do not and therefore whether they like it or not become passive speculators on currency pairs.
Other Client Types
Clients may be interested in the analysis not from an investment viewpoint but from a viewpoint of exporting or importing, or travelling abroad, or trading on a leveraged or unleveraged basis, or hedging foreign currency positions of other assets.
There is also ample scope to make profits, through creating higher revenue streams or lower cost streams.
There are diverse ways of applying currency analysis to making financial decisions on a day-to-day basis. Success in using the information for making better decisions does rely on knowledge and experience with exchange rate markets. We have tried to use non-technical language throughout the company website to encourage as wide an audience as possible.
Non-professional clients are also encouraged to build up their knowledge and experience before applying their ideas to actual decisions. Amateur golfers are encouraged to acquire appropriate equipment and knowledge but are not generally expected to perform up to the standard of a professional player.
Simply playing the game itself and enjoying the process of improvement (hopefully) are sufficient to maintain the interest of hundreds of thousands of amateur golfers. Similarly, when people are very interested in Forex Management issues our response should be to encourage and support that interest for the enjoyment (the ‘buzz’) of simply participating and making progress. The heavy hand of regulatory authority which says ‘this activity is inappropriate for amateur players’ works against common sense and works against the very principle of risk management which lies at the heart of both financial and investment management.
Especially with the diversity of uses to which managing of forex can be put and the clear and heavy trend towards increasing use of forex markets in our daily lives, the encouragement should be becoming more positive and not less, and it will happen through natural growth and acceptance of better ways of managing business and personal financial affairs.
But what is Forex? I encourage you to nail the answer down because it is all part of the enjoyment of new knowledge especially practical knowledge.
What is Forex?
‘Forex’ is a word which you probably understand as a standalone concept – it means currency they use in foreign lands, not our own domestic currency. ‘Foreign exchange’ therefore used to be a rather precise term for everyday uses of ‘their’ currency and not ‘our’ currency hence the abbreviated ‘forex’ which is short and punchy. But sadly, this word is not keeping up day-to-day realities. Because of the much wider use of different currencies and different ‘base’ currencies within the same entity, the word has little or nothing to do with ‘foreign’ at all. And shouldn’t we be getting away from describing things as ‘foreign’ which has the connotation of strange, unfamiliar and even ‘weird’. There is no question that currency exchanges no longer deal in the language of foreign and domestic. Have a look at any currency exchange platform and you will see immediately that we are dealing in a world, not of ‘them and us’, but of one currency relative to another currency.
For example, suppose I work in Australia for a Japanese company which has decided to source its machinery from Germany and the UK. The ‘forex’ contracts involved could include all the above or all the above excluding the AUD (Australian dollar). In my presentation of the funding alternatives for these machines it would be meaningless to describe the transactions as foreign exchange transactions to a Board of mainly Japanese directors. Please send me a comment if you disagree.
But the fact is that we are stuck with the word ‘forex’ for the foreseeable future. But since the link with ‘foreign’ has been diluted somewhat maybe there is no problem using this word to describe currency exchange markets. I don’t intend to fight the whole world over this point, but it is very important for us all to accept we are just talking about one currency relative to another.
Forex also has a context, and the context is as one of the three (only three) financial asset classes. These three asset classes have multiple sub-asset classes, but it is very useful to understand the assets and how they differ from each other.
Forex is one of the only three financial asset classes in the financial system.
Forex is just Cash in different countries. Cash is a low risk, low return financial asset conventionally embracing all transactions of less than one year and usually associated with an index (market index) of assets of 3 months. Cash allocations expand and contract within the portfolio according to perceptions of the pattern of risks of all financial assets.
Bonds are financial assets embracing all transactions of more than one year and associated with an index (market index) of the appropriate bond market. Bonds may range from low to high risk but in a portfolio are regarded as lower risk/lower return than Shares (based on historical empirical evidence).
The third and final asset class is Shares. Shares are financial assets being part ownership of a listed company. Shares do not have a time horizon and are associated with an index (market index) of the appropriate share market. Shares may range from low to high risk but within an overall portfolio are regarded as higher risk than Bonds or Cash.
The foregoing may sound complicated and overly technical but I think that describing all financial assets within only three categories gets us a long way to describing the broader context within which currencies operate. Forex is simply Cash in different countries and Cash is simply one of the three types of financial assets which exist and feature in portfolios of assets.
You may argue or note that many assets which are included in some portfolios are not represented by any of the three types of financial asset. That is because non-financial assets, ‘real’ assets are assets which have ‘real’ properties which we can all see and touch if we wished to invest in them – such as all residential houses, commodities, all unlisted properties and the assets of all unlisted companies, rare stamps, art works and memorabilia.
‘Cash’ includes all notes and coins which do not earn a substantial interest rate. If I have USD$100,000 to invest in Cash I could deposit the amount in a USD$ account for 12 months at, say, 3%pa (not the current rate, a fictional rate). Or I could deposit the amount is another currency account CAD$ for 12 months at, say, 4%pa. Which is preferred? Well if I expect that the USD/CAD exchange rate will remain unchanged between now and 12 months’ time, I would prefer the high interest rate of Canada 4%pa to the 3% USD interest rate. Only if I expected the CAD$ to weaken by more than 1% would I prefer the USD$ choice. This is the role of exchange rates – to attempt to signal to the markets the likely direction of relativities between the two countries, including relative interest rates.
You might expect that relative interest rates would be the most important driver of currency exchange rates assuming free, competitive markets. But in practice many other factors come into play even during short periods. But the markets will and do react to perceptions about short term interest rates.
This section has been what about Forex is and the broader context for discussing its characteristics and the start of a discussion of the drivers of exchange rates. A full discussion would take many more pages and the website covers what I see as the main drivers from a ‘fundamental’ viewpoint, as opposed to a strictly technical process.

Forex as a Life Skill
This report has aimed at whetting your appetite for currency exchange issues and their management for two principal reasons. It is a very practical life skill to develop and my opinion is that within a few years there will be more and more pressures for individuals to have some skill as the world economy re-opens and gains a lot more momentum, some of which has been lost due to recent crises. The scope and depth of issues arising for companies and individuals are only going to increase. At this stage you can start the ball rolling by taking some easy steps towards testing your level of interest and potential enjoyment and build from there.
I may have hinted that I am quite passionate about the topic which gives rise to the second reason for my promoting it to you. It is simply that I find the topic, while challenging, to be an immense amount of fun. It is more fun still if your overall outcome includes reaping some financial rewards – I also like those. Financial losses are not so welcome but from time to time are inevitable. However, they usually are accompanied by some lessons.
I had hoped to include here some real examples from my own experience:
• Financing an overseas trip through currency trading over time
• Using a forex platform while teaching Western economics in Central China
• Designing cash management strategies to take advantage of mis-priced currencies both while travelling abroad and at home
• Designing investment strategies around currencies to take advantage of expected currency to shifts over the longer term (say, 12 months, rather than 1 month)
• Finding it difficult to decide whether a longer-term strategy should be re-classified as a ‘trade’ if the transaction has made a profit already. It is very tempting sometimes to switch an investment into a trade, but the best advice is to treat each case on its merits. ‘No-one ever regretted realising a profit’ if the ‘feeling’ was right.
• Finding it difficult to decide whether a longer-term strategy should be re-classified as a ‘trade’ if there are short term risks. I held a sizable position on USD/JPY (pro USD) during most of 2012, but by the end of that year the ‘fiscal cliff’ debate heated up just before Christmas and I called a 1-month recess from my posiition. Thereafter, the news went in favour of USD which appreciated strongly during 2013.
• Accumulating ‘small’ profits at the start of a transaction is a strategy which has paid off for me. I have found that the extra confidence that comes with being ‘in the money’ takes off some of the pressure.
• I assume that any transaction I enter could move plus or minus 10% within a short time span. Check graphs over 10 to 20 years of recent years, not days or months. If your leverage is ten times your position size that means you have gained 100% return or -100% (lost all your money invested).
• Following on from the previous, I favour having a large account balance which is a strong multiple of the net value of your positions/exposure.
• Making large losses almost immediately inevitably makes you want to cut and run. I think there is a good case for taking some of the position off the table but not all. Frequently, markets react to negative news in an exaggerated way only to rebound before the close. It just feels better to do a bit of both, but I suspect this is a personal choice.
The above comments are meant to be encouraging and to be persuasive about how enjoyable the activity is as well as practical. Practice accounts (also known as Demo accounts) are provided generally free of charge and there are also free sources of currency exchange networking and news websites. I also recommend visiting central bank websites which discuss in detail the major issues of that country/region. This includes countries of great significance to the global economy if not specific to currency trading environments, e.g. China, India and Russia. Finally, there are regular reports on the global economy from the OECD website, World Bank and worthwhile updates from Bank of International Settlements and World Trade Organisation.
Remember that we cannot all be professionals, that we still play golf even though we are not quite up to Tiger standards. Also recall that when you are 100% exposed to your ‘home’ currency this is an extremely risky position to take even if it’s a decision that you did not take yourself - it ‘happened’.
Finally, please use the contact details for further information and queries/comments. This is an opportunity to raise our understanding of an important life skill for everyone whether young or old.
John Gallacher,
e-mail: [email protected]
website: https://www.fourfactorforex.com
Ph. +64 29 479 2928 New Zealand
A website which provides many free services: https://www.forexfactory.com
A typical website for a sophisticated platform: https://www.oanda.com

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