What are Trading Strategies

Forex Trading Strategies: You Should Now

Introduction

If you are a beginner or newbie, there are many things that you know about Forex Trading Strategies. These terms will let you know what to do and what not to do as a beginner. Once i was at that stage and following and knowing these terms helped me a lot as a beginner and I learned very fast. So will you. In this article, We are going to tell you Forex terms you should know as a beginner. Let’s get started…

Forex Trading Strategies

Forex Trading Strategies

If you are working on something you haven’t done before, as the first step, you would research it, gather necessary and essential information, and make a plan or strategy so that your plan would work out.
Similarly, when it comes to Trading Strategies, if you are a beginner, you must know the terms and conditions. Also, you must know what strategies are generally used in Forex trading.

Following are some strategies that the foreign exchange market prefers:

Day Trading

If you are a trader, whether experienced or a beginner, Day trading is the perfect option for you to choose. Day trading is one of the most popular and trusted methods of trading. It generally involves one trade per day but is not carried out at night.
By studying currency fluctuation, it is observed that although the currency fluctuates all day, price fluctuation is small during the day. It must be noted that you can make several trades per day, but remember that before the closure of markets, you have to liquidate all your trading positions.

Swing Trading

The swing trading strategy is another strategy used for trading. Swing traders prefer technical analysis to determine when to enter or leave the market. These traders tend to capture just one swing in the market. Here, the traders hold a position for more than a day. Swing trading is driven by technical analysis. The strategies used in day and swing trading are almost similar; the main difference between these two is the time you hold your position.

Carry Trading

In carry trade, you buy the currency from a country where the interest rate is low. Then you invest these funds in a country where interest rates are high. Here you can make profit from the difference in the interest rates. The carry trading strategy can impose on both long and short trades.
As a beginner, you must be thinking that it’s the easiest and most profitable way to trade. But there is a drawback to carry trading: you expose the currency exchange rate. A slight devaluation of the target currency, for example, might immediately wipe out any advantages from the interest rate difference. Carry trades work best when the currencies you’re trading have low volatility.

Hedging

Hedging refers to an investment status that is used to reduce the expected losses by an associated investment.
Following are the main types of hedging:

  • Cash Flow hedge
  • Fair Value hedge
  • Net Investment hedge

Position Trading

The Position trading generally refers to a long-term trading strategy. Position holding simply means to hold a position for a long period of time, i.e., weeks, months, or even years. A trader chooses to hold positions with the expectation that they will become profitable in the long term. Of all the above strategies, position trading is the most long-term. Although the profit potential here is greater, there is also a risk.

Basic Forex Trading Strategies

Basic Forex Trading Strategies

Following are some important terms for you as a beginner to know Trading Strategy in Trading world:

1. Base and Quote Currency

As a beginner, you should know about the currencies used in the Forex Trading. In foreign Exchange Market, Currency unit prices are known as Currency Pairs. Traded pairs for Forex currencies are:

  • GBPUSD
  • EURUSD

Here the first pair i.e. GBP and EUR are base currencies, they sometimes also refers as Primary currencies.
The second pair i.e. USD, this is Quote currency or Counter currency.

2. Lot Sizes

Currency pairs are traded in Lots. A lot is the amount if currency pair that you are buying or selling.
Standard lot
Mini lot
Micro lot

3.Pips and Pipettes

PIP is an acronym of percentage in points or price interest point. It is the measure of the change in exchange rate of a currency pair. It is the smallest unit we use while trading different currencies.
PIPETTE is a 1/10 of a pip i.e. 10 pipettes=1pip. In the exchange rate, pipette is the last decimal.

4. Leverage

Leverage refers to the use of assets and funds for which the business has to pay a fixed amount. It is the ratio of the amount of money you have in your account to the amount of money you can trade. Leverage is a small amount of money that can control a much bigger financial position.
Let’s take an example to further clarify this term.
Now suppose you fund $10,000 from your account and your broker offers you 1:5 leverage. This means your broker will allow you to trade up to $500,000 worth of currencies. If he gives you 1:10, you can trade up to $1 million. Leverage expressed in “X : 1”.

5. Margin

A Margin is the amount of investment that your broker needs you to make in order to start trading. Margin and Leverage are essentially two sides of the same coin.
Let’s take an example: If you want to trade $500,00 in currencies, your broker will demand that you put 2% of the amount you want to trade in your account. The broker has a number of funds to cover any potential losses. It is the amount you need to have in your account in order to keep a position open.

6. Base and Quote Currency

As a beginner, you should know about the currencies used in the Forex Trading. In foreign exchange market, Currency unit prices are known as Currency pairs. The currencies in Forex are traded in pairs.
Let’s take an example :
                                                       GBPUSD
                                                       EURUSD
Here the first pair i.e. GBP and EUR are base currencies, they sometimes also refers as Primary currencies.
The second pair i.e. USD, this is Quote currency or Counter currency.

7. Bid, Ask and Spread

Let’s have a look on Ask and Bid prices. People generally issue pending orders while trading in the markets, which are specified prices to purchase or sell an item at some time in the future. Bid price refers to the price at which a forex trader would pay to sell a currency pair.
Ask price is the price at which a trader would buy a currency pair. It is also offer price.
The difference between ask price and the bid price is termed as Spread in Trading field.

Conclusion

So far In this article we have discussed all the terms and conditions and Trading Strategy that you should know about forex as a beginner. By knowing them, you will be able to know what to do as a beginner as a forex trader and what things you should avoid to get better results. This article will help you in learning fast and becoming a good forex trader.
This article would be enough for you know the beginners term. If you want to share any information regarding this topic feel free to contact me. Happy trading!

FAQs

What is Forex Trading?
Forex trading or foreign exchange market is the place where currencies of different countries are traded. Currency exchange is the exchange of one type of currency with the other. These currencies are traded in pairs and the value fluctuate on different factors.

What is foreign Exchange Market place?
The Foreign Exchange market is the place where different currencies are traded globally by traders using different platforms.

What are currency pairs?
In forex, we trade currency in pairs i.e. EURUSD. Here the first pair is Primary or base pair while the other is Quote or Counter pair.

What are different strategies used in Forex Trading?

To become a successful trader, you need to know these different strategies that forex trading uses. Following are some strategies:

  • Day Trading
  • Swing Trading
  • Trend Trading
  • Range Trading
  • Breakout Trading
  • Hedging

What is a forex broker?
A broker is a person who arranges transactions between buyer and seller. They act as a middleman between interbank market and a trader for buying and selling.

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