Beginners to the forex market may find things to be a little daunting to begin with. This is because there is a lot to take in before you part with you cash for the very first time. The most crucial element you need to address before you get started is what trading forex trading strategy you will adopt. The following looks at the top forex trading strategies you should be aware of before you start trading.
When a company sells either goods or services in a country that isn’t considered their residential home, they will usually be paid in the currency of wherever said transaction takes place. This sounds like a simple enough transaction, but when you factor in fluctuations between currencies things start to get a little more complicated. In order to avoid these fluctuations harming the company to an extreme degree, the firm will hedge by trading currency pairs as a form of protection. Traders can do the very same thing in order to protect their foreign currency exposure should they be involved in international markets. Hedging as a forex trading strategy is by no means fool proof, but what it is a risk addressing way to trade forex online.
It is broad as a term, but most traders opt for a speculative forex trading strategy. This involves but or selling an asset in the face of a higher than average risk in order to gain profit from either a positive or negative market movement. Speculation in many ways takes on the form of a single bet; you wager your money on a currency moving higher or lower against another currency. When broken down simply, you are backing a currency to be better or worse than another. It isn’t just private traders who choose to speculate when it comes to forex, you’ll find that hedge funds, banks, and sometimes pension funds do so as well.
The aforementioned are the two main forex trading strategies, but they aren’t all that’s out there. Those who want to try something a little more niche may want to take a look at some of the lesser-known forex trading strategies. Arbitrage trading involves buying and selling a currency simultaneously at slightly different rates in order to generate a small yet quick profit. Considered an almost-risk free trading option due to how quick you get in and out of the trade, but it is one that requires a great deal of skill to execute properly.
Carry trading requires you to sell the currency of a low interest rate nation and invest the money made into the currency of a high interest rate nation. Profit from this type of trading can only occur when the two currencies offer joint levels of stability. Carry trading is considered to be the most sophisticated forex trading strategy in use today, but even with such tradition it isn’t without big risk. When high volatility comes around carry traders are at heightened risk, as currency fluctuations can reverse what is usually a slow and steady profit model.
If you think there is only one way to trade forex online, reading the above may just change you train of thought.
Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.
Alexander Bowring is a London based writer and a Southampton Solent University Screenwriting graduate. He has worked alongside TV personality and Telegraph feature writer Alison Cork, whilst also having produced content for ITV, This Morning, Canvas8, Who’s Jack, Alison at Home, and Bonallack & Bishop Solicitors. Alexander also has a keen interest in investments.