Forex trading broadly means buying and selling of different currencies. Forex strategies help the trader to make the correct decision concerning a particular instrument. With the availability of easy-to-use forex platforms, Forex trade is never short of options. There are endless advanced strategies that are applicable in forex trading.
Forex Trading Contracts
The FX market can be classified into three major categories:
- Forex spot trading: This is the most liquid form of trading and involves buying one currency and selling another at the same time. With forex spot trading, traders can buy or sell currency at real-time market prices.
- Forex forward trading: This form of trading involves buying one currency and selling it at a later date, usually with a set date in the future. With forward forex trading, traders can buy or sell currency in advance, thus locking in the current market exchange rate.
- Forex options trading: This form of trading involves buying or selling an option. The buyer or seller of the option pays a premium for the right to buy or sell the underlying currency at a strike price on a specific date. Traders can choose which options to buy or sell and when to sell or buy.
Forex Trading Strategies
Discovering the simple forex trading strategies is complex and confusing. But understanding a few simple forex trading strategies can help you to maximize your trading profits.
Day Trading
Day trading is the act of buying and selling stocks and other securities during the same day. Day traders try to make large profits by buying and selling stocks, futures, and options throughout the day. The day traders believe that stocks are volatile and that prices change rapidly because of changing economic conditions and news events. Day trading can be lucrative, but it’s not for everyone. Day traders who want to make money fast often trade on margin, which involves borrowing money to invest.
Swing or momentum trading
Swing trading involves buying and selling securities within a specific time frame. Swing trading is when you hold positions for between a day and a week. The period is based on the type of security that an investor is trading. For example, an investor who trades equities would hold a position for a day or a week.
Here, a trader buys a stock and additional shares after the price has risen or sells short shares after its decline.
News trading
Traders following the news may profit by trading on the announcements. Securities firms, in particular, monitor news releases for market-moving information. News trading is for traders who buy stocks only to make money from a temporary price drop following a major event or announcement.
Unlike trading in stocks (or commodities, or currencies), there’s no need to dive in and study the market every day. Instead, you look at the news headlines the night before or morning of an event and click a button if you want to buy or sell.
Trend Trading
Trend trading is the practice of trading in financial markets based on the anticipated direction of market trends. Trend traders focus their investments primarily on the longer-term trends in financial markets. The trend trader follows the prevailing market trends, either up or down movements, and anticipates the general direction of that trend.
Scalping
Forex scalping is the act of making many small trades to profit from small price movements in the foreign exchange market. Forex scalping is a popular trading method among traders of all experience levels and is practiced primarily in the spot foreign exchange market, which trades in currencies. Scalping is usually a short-term trading strategy where a trader will repeatedly open and close positions in quick succession, usually within a brief timeframe.
Conclusion
Whether you are trading forex or any other financial market, proper money management is key to success. Prudent money management means not borrowing too much money while having enough money in the reserve to cover any losses. It means not trading with more money than you can afford to lose.
Trading forex is a highly individualized activity, and what works for me may not work for you. Forex trading is simple when you know the right strategy to use. Trading strategies can help you manage risk and limit your losses.
