It can be highly beneficial to gain an understanding on the different forex trading strategies. In the world of trading foreign exchange, the Forex is the place you go to trade currencies, and it changes very quickly. For newbies, this market seems exciting because it’s running 24/7, and finding a buyer is more comfortable because of the amount that is traded daily. Over $5 trillion is the average daily value, according to recent data, a number that is a lot higher than the stock market in the U.S., which has a cost of $169 billion daily.
Foreign exchange trading was made even more accessible with the invention of online Forex trading. With capital, the only thing you have to do is open an account. You can open one for just $100, but it won’t let you trade much. For an active trader, it could work, but the risk of losing your capital quickly is too high. Forex traders won’t risk more than 2% of their money, limiting you $2.
Trading on foreign exchange is essentially just betting on the value of one currency over another, meaning that trading is always done in pairs. For example, if you read EUR/USD 1.5223, that means that one Euro is worth 1.5223 USD. If you believe the value of the Euro will increase, you buy the Euro with USD and wait for it to do so. You have to see how many “pips” it rises (or falls), for example, if the value of the Euro rises to 1.5233 it has increased by ten pips (one pip is 0.0001).
If you’ve decided to start on Forex trading, you only have to input money into your account and choose one of the forex trading strategies to play with. This is the critical element to this type of trading, and there are a variety of approaches to choose from, depending on your specific needs.
Here are the five forex trading strategies we have selected as the best you can use:
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Carry Trading
Stable markets that have carry trades can be taken advantage of by investors that are here for the long run. A market that is stable means that the interest rates are lower. A carry trade is performed by borrowing money with a flat rate of interest and then using that money to invest in high-interest-rate currency. Keep in mind that significant loss could be the result of market volatility.
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Swing Trading
For Forex trading during your spare time only, this is the strategy for you, working for medium/long-term trades (days or weeks), so patience is essential. You choose a dominant currency pair, something of the likes of USD/EUR, during an explosive time, set your orders for profit and loss, and wait for the flows and ebbs of the financial tide. This works for spare time-traders only, because it erases the emotional factor of checking Forex quotes regularly, fighting off the urge to sell too soon or hold too long.
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Day Trading
This is known as “scalping” in the Forex market, as well. This is the name of the practice where investors hold their stocks, assets, or in this case, currencies, for less than one day. It’s stressful and full of adrenaline, for people who love the rush. To be successful in this practice, there’s no one single trick. Investors who practice this strategy tend to follow a trend until goes into a different direction. You have to be quick: get in as soon as a currency hits your target, and get out when you reach your take-profit point. Scalping in the Forex market calls for a substantial capital because this has to be done several times a day.
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Positional Trading
As usual, this requires buying low and selling high but holding your position for longer than you would usually do while implementing other forex trading strategies (weeks, months, years even). This is also good for spare time traders, who don’t enjoy following the markets consistently. The use of technical analysis and study charts is recommended. It consists of trend trading: follow a trend and, keeping in mind your research, you hop on board. One common technic is buying either the currency that is moving up the charts or selling the ones that are falling. Even though it takes time, the return can be enormous.
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Arbitrage Trading
Known as the single strategy that is risk-free. To make it simple for you, you mainly buy and sell the same currencies simultaneously, making a profit from the difference.
No matter the strategy you pick, you need to follow the one that works for you. Switching up forex trading strategies in the middle of a trade, don’t hold your position for longer than what you initially decided, or sell earlier than you initially intended. Stick to the strategy you chose.
Risk Warning: Users should be aware that all investment markets carry inherent risks, and past performance does not assure future results. Trading of any kind is a high-risk activity, and you could lose more than you initially deposited. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 73-89% of retail investor accounts lose money when trading CFDs. Please be sure you thoroughly understand the risks involved and do not invest money you cannot afford to lose. Your capital is at risk. Advertiser Disclosure: TopBrokers.Trade is an independent professional comparison site funded by referral fees. The compensation TopBrokers.Trade receives is derived from the companies and advertisements featured on the site. Due to this compensation, we can provide our users with a free comparison tool. Unfortunately we are unable to list every broker or exchange available, however, we do our best to review as many as possible.
