Values of different currencies across the world are dependent on global political, economic and social events and fluctuate regularly. These fluctuations enable traders dabbling in foreign exchange or forex to earn money by basing the sale or purchase of currencies on the speculation of the future value of a particular currency.
Today the forex market is worth more than $6 trillion and is the biggest financial market in the world. The global forex market is important for the sustenance of international trade relations, imports and exports, and the global economic framework and provides a livelihood to thousands of forex traders across the world.
Read on to know more about forex trade strategies, and the benefits of pursuing a course in the subject.
What is forex trading?
Forex trading is the basis for all international transactions and surpasses the volume of futures or stock market trading. The goal of forex trading is to exchange one currency with another in the faith that the value of the received currency will increase in the future. To earn an actual profit, forex traders must sell the currency that they received at a time when the value of the currency has increased. Doing that is referred to as ‘closing the bid.’
What are the different forex trading strategies?
Forex traders use many strategies and analytical methods to determine the best times to buy and sell currencies. Here are the most important strategies involved in forex trading.
- Fundamental analysis: Fundamental analysis looks at the integral indicators of an economy to understand if a currency is likely to be undervalued or overvalued in the future. This method can be a little intimidating as it involves many elements of a country’s economic data.
The method also analyses currency inflows and outflows in addition to the economic news releases in the country.
- Technical analysis: Many traders favour this strategy as it gives decent insights into the prediction of the value of a currency. It involves reviewing the past and recent behaviours of the currency to predict the value in the future.
Technical analysis involves a long list of checklists to detect minor fluctuations in currency trends. It provides traders with a visual and scientific basis for deciding the time for buying and selling currencies.
- Trend trading: This method involves identifying an upward or downward trend in the currency price movement. It uses these trends to decide the best time for buying and selling currencies based on strength of the trend.
The method involves various factors such as moving averages, present currency value and relative strength indicators for calculating the trends.
- Swing trading: This strategy looks to set up shop during the ‘swing’ periods of a trading day. These periods are when the market registers the maximum activity. This strategy reduces false price movements observed during lean periods.
- Breakout trading: Breakout trading identifies a trade entry point from a previous trade range. If the price of the currency breaks out of the range, the trader can assume that the upward trend will continue. Similarly, if the price falls below the range, the trader would know better than to sell the currency.
Why should you learn forex trading?
Here are the primary reasons that should convince you to invest time and money for pursuing a course in forex trading.
- It can serve as an extra income: Trading in foreign exchange can help you supplement your income from a regular job, which can ease your financial situation. However, it is important to note that it takes to build up your skills and intuition in the subject.
- It is less dependent on the employment market: It is serves as a perfect source of income as it doesn’t get impacted much by the employment rate or downsizing in companies.
- You get to choose your work timings: Unlike the stock market which is open for only 6 hours a day, the forex market is open 24 hours for a 5-day trading week. This provides you with the flexibility to choose your work schedule.
- It involves lower transaction costs: Due to less numbers of middlemen in the business, forex trading has significantly less transactional costs unlike other types of trading. This reduces your expenditure and increases your profit margin.
- You can work anywhere: You can access the forex market from any part of the world so long you have a computer and a working internet connection. These days, it is even possible to trade while you are travelling with the help of smartphones.
- There are tools developed to supplement your job: Because of technological advancement, there are many new tools and software in the market that can help you predict currency values by calculating complex factors. These tools makes the trading easier for you.
While all the strategies involved in forex trading are viable, it requires time and technical expertise to know which one to use at a particular time. It pays off to familiarize yourself more with the technicalities of the subject. Pursuing a short course on forex trading can help you become a seasoned trader.