Forex Encyclopedia Foreign Exchange Global Code of Conduct (XIII)

II. Key Risk Types  Forex Encyclopedia To varying degrees, forextradingwebsiteonline participants are subject to different forextradingbrokerwebsites depending on the size forex trading site complexity of their foreign exchange market activities and the nature of their participation in the foreign exchange market For this consideration, the following principles outline some of the key risk types associated with the key risks applicable to foreign exchange activities Practice credit and counterparty risk principles29 Market participants cashback forex have adequate processes in place so as to manage counterparty credit risk, including, where appropriate, through the use of appropriate netting and collateral arrangements, such as legally enforceable master netting agreements and credit support arrangements The use of master netting agreements and credit support arrangements helps to enhance the smooth functioning of the foreign exchange market Other initiatives to manage counterparty risk include timely and accurate assessment of counterparty creditworthiness prior to trading, adequate diversification of counterparty risk where appropriate, appropriate setting and monitoring of counterparty exposure limits, and accepting transactions only when they are within permitted limits credit limits should be set independently of the front office and should reflect market participants established risk appetite market participants should maintain accurate recordkeeping materials regarding counterparty relationships, including records of conversations and written communications Market participants should have an accurate and timely means of measuring, monitoring, reporting and managing market risk market risk arising from changes in foreign exchange prices, which could adversely affect the financial condition of market participants market risk measurement should be based on generally accepted measurement techniques and concepts, including the use of stress testing for market Market participants should be aware that monitoring (if applicable) can mitigate the liquidity risk that may arise from their trading in the foreign exchange market.31 Market participants should deploy independent processes for day-to-day market-tracking positions to measure the size of their profit and loss and the market risk arising from their trading positions. When obtaining external data for evaluation purposes: useful sources of data include screen services, brokers and other third-party providers; quotes and market stares are accurately and regularly measured and should be reviewed independently of a front office function; the meaning of the data should be understood, e.g., if the quote is the last real trade, when the last trade was executed, if the price Not an actual trade, what is the calculation of the quoted price Each trading day, market participants should agree internally on a closing price so that after-hours positions can be monitored and evaluated In cases where reference market prices are not available (for example, in the case of day-by-day staking of complex derivatives or exotic instruments), internal models identified by internal departments independent of the front office can be used to guide appropriate risk pricing Forexopedia