Forex means buying or selling currency in the forex market. Traders purchase foreign currency at their desired rate using their local money and sell the same later on when its market value increases. It is also known as currency trading, FX, or foreign exchange. Forex trade worth more than $5 trillion takes place on a daily basis in various countries around the world. The difference between the buying and selling price for the currency is the trader’s profit margin to put it in simple non-technical language.
Before a trader starts forex trade, he or she must select the strategy for the business. News trading, position trading, swing trading, and scalper are some of the most opted strategies.
Position trading can be suitable for long-term traders
If you are someone who has the investment capacity to hold trades for multiple weeks or months, you should consider choosing position trading.
The risk to reward ratio in this strategy can prove to be five-time better than the rate offered by other approaches. As a trader, you would face lesser stress as you won’t have to focus on and worry about short-term price fluctuations. Plus, you will also end up spending lesser time in trade activity on a daily basis as your trades would remain in place for a longer-term.
However, there are some negative sides as well. You might earn lesser profit due to a lower number of trades. Plus, for using this type of strategy, you need to make sure that you have excellent knowledge about the fundamentals that drive the market up and downward.
Swing trading involves making the most out of a single move
A swing trader must analyze the patterns and price trends shown by the selected currency during the last six months to understand the type of short-term price momentum that it shows. He or she must be able to gauge the extraordinary potential of the currency to move up or down during the selected timeframe.
Swing trader does not need to devote much of his time to the activity, and only an hour or two on a daily basis can help in remaining relevant. However, there always remains an overnight risk when it comes to dealing in forex.
Day trading is short-term trading at a faster pace
Day trading involves making profits using the intraday volatility. It is a short-term business technique which requires traders to hold trades for minutes or hours during the time of the day when the forex market is the most volatile.
There is no need to focus on the long-term trend while using this strategy as you would only be concerned about the events surrounding the currency for that particular day.
As you will close all the positions before the end of the day, you won’t have to worry about any overnight risk. It involves taking little-bit of stress as you need to keep on monitoring the currency market during the entire day. If unfortunately, you come across a black swan event, you might end up suffering huge losses. Individuals involved in a full-time job should not use this strategy.
Scalping requires discipline
This plan involves making profits by buying and selling the instruments multiple times throughout the day. Automated systems can buy the currency at the desired price and immediately sell the same as soon as the price reaches the desired higher point. It is considered one of the most complicated and risky strategies.
Profit targets need to be small to place a more significant amount of trading opportunities within a day. As many as hundred trades can be placed in a day with minimum exposure to risk.
Opting for a trading platform that offers flawless order execution without any delay is extremely important. A trader needs to remain aware of the demand and flow of the selected currency and events in the currency’s home country. Such trading is also known as scalp trading.
News trade involves looking out for news events that can impact the currency’s value
News has the potential to impact any country’s currency positively or negatively within minutes. Not just the traditional currencies, but even digital currencies like Bitcoin remains vulnerable to the impact caused by news stories on a daily basis. The digital currency reported a deep fall in its value due to the story about Goldman Sachs canceling its plan to open digital currency trading desk recently.
Both, small and large investors should always keep on looking for new money making opportunities, no matter if you already have a profitable strategy in place or not. News trade can help you do just that.
Serious investors need to focus on the news and events that might impact the selected currency. For example, if you plan to buy and sell Malaysian ringgit, you should keep yourself updated about the markets, essential events, employment data, and foreign investments in Malaysia. Focus on the news that can bring changes in the forex market. Focus on the announcements made by the Central Bank of Malaysia as well as the government on a daily basis. And of course, don’t keep your eyes off the country’s climatic conditions, geopolitical news and political news as well. Such factors can bring the currency value down within minutes.
It is always better to test your skills without risking your investment during the initial stages. Before starting trade in the real market, try your hands with demo forex accounts offered by most of the online trade platforms these days.
Set a budget according to the amount that you are willing to risk in trade each month. There is no point in putting your monthly house rent and grocery money for the same. Select the amount that you can afford to set away from your monthly budget.
Choose a platform that has positive reviews and executes trades without any delays. Charges for the transaction must be a minimum. Make sure that the platform operates under license from some or the other country’s financial regulator. No matter whichever country it may be.