More than 5 trillion of dollars of trading volume is processed through the forex market every day, which makes forex trading the most liquid and favorable financial market in the world. With the advent of automated trading robots, custom indicators, and the popularity of copytrading; trading forex profitably has become easier and cheaper than ever before.
There are a total of 180 different national currencies and most of these are paired together and traded on the live forex market daily. Even though not all currency pairs enjoy the same activity and trading volume, traders can find ways to take advantage of the fluctuating exchange rates to realize substantial profit in a very short amount of time.
This is because forex traders can speculate on both upward and downward market movements and still come ahead. This is a great advantage over the stock market where traders can mostly buy a stock and wait for its price to increase.
Also, trading forex provides access to high leverage ratios, which enable even traders with small accounts to open positions several times larger and enjoy high yielding results. However, high leverage also exposes traders to higher risk due to the increased exposure. Therefore, traders with access to high leverage should consider reducing their positions to smaller sizes to minimize risk.
There are hundreds of proven trading strategies that can be used to trade profitably, but it all depends on your profit targets and how quickly you wish to meet them. Some are more suited to aggressive investors and others lend themselves better to a more conservative trader, but knowledge and experience usually can be the difference between profit and loss.
What do I need to get started?
Taking the first step towards becoming a successful forex trader is a big decision, but the overall process is quite straightforward. You only need a modern device with internet access to download and install the trading platform, an account with a trusted forex broker and some capital to get started.
Being able to access your account and trade from your computer, tablet or smartphone from anywhere in the world at any time are some of the few benefits available to forex brokers. Some don’t even trade themselves as they can just copy the trades of more experienced traders and profit from their results or even have them manage their accounts directly.
The technology behind these sophisticated solutions is constantly optimized, providing even better results over time and even if you unsure as to whether investing in forex is a suitable approach for you, you can sign up for a demo account which allows you to practice trading as normal, but without investing any real money.
The three major Forex trading strategies
Below we’ll take a look at the three overarching trading strategies employed by traders around the world.Some traders also prefer a mix of two or all three of these depending on the market climate and in truth, it’s highly recommended that you constantly look for ways to adjust your strategy in order to adapt to the market and specifically to the currency pair you have chosen to trade.
Scalpers are high-frequency traders that aim to snatch just a small amount of profit from each trade and exit the market as soon as possible. At the end of the day, scalpers will usually have executed hundreds of short trades.
The currency markets may be inherently volatile, but for the short-term, the price movements aren’t substantial enough for big profits. Therefore, traders with short-term profit targets tend to trade more aggressively and this strategy is more suited for those that aren’t afraid to bear some additional risk in order to meet their goals.
In fact, scalping is the most stressful strategy as well, because traders need to always keep an eye on the market and their trades to ensure that they can always exit before the market starts to turn against their position.
Also, if you think scalping is a suitable strategy for your trading style, you should make sure that your trading costs (i.e. spreads) are kept to a minimum. Not all brokers offer competitive spreads and as scalpers’ objective is to close positions as soon as they are profitable, you need an account with a broker that offers the most favorable spreads so your trading costs don’t affect your results by a great margin – low spreads make it easier to hit your profit targets and exit the market sooner.
Since scalping is one the riskier strategies, scalpers prefer slow-moving markets which are more predictable and typically tend to avoid trading during news releases which can highly affect market stability and provide impetus for rapid price fluctuations.
If you are patient and don’t mind waiting for a couple of days to get results, perhaps swing trading is the most viable strategy for you.
Swing traders open and hold their positions with a predetermined target or limit, which will close the trade automatically as soon as it’s reached. Even if the target isn’t hit within a couple of days, they won’t mind leaving the position open until a better price is available to make their exit.
Traders using this strategy don’t need to monitor their platform constantly and are therefore much more relaxed compared to scalpers. Spreads also don’t worry swing traders a lot because they aim for larger profits based on riding strong trends with higher movements.
The only thing that swing traders need to worry about is the swaps – trading fees that are incurred for holding positions overnight, but these can be negligible compared to a winning trade.
As the name suggests, copy trading involves copying the trades of other traders. This strategy is widely popular with beginner traders, but some professionals sometimes may use copy trading to take advantage of opportunities in assets that they haven’t traded before.
It’s a form of passive investment, and while it limits your profit potential, the advantage is that you will have a more successful trader, trading on your behalf while you sit back and enjoy the profits.
Admittedly, managing to become consistently successful in forex is quite challenging and most traders will eventually give up – even with years of experience. However, those that find a strategy that makes the most sense for them and make sure to educate themselves regarding the money and risk management options available, will have a better chance at succeeding in this exciting financial market.
Regardless of your trading strategy and objectives, you should always make sure that you understand the risks involved and that you are trading via a regulated broker that’s equipped to provide favorable trading conditions under in compliance with the regulatory framework of the industry.
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