Forex trading, also known as foreign exchange, is a marketplace where currencies are exchanged. It is the largest market globally. The market comprises all types of buyers and sellers, from banks, cooperatives, companies, and even individuals.
Foreign exchange is a market where currencies are exchanged. International trade makes forex trading essential. Due to the increased demand for goods and services globally, the market is full of traders.
There are many reasons why traders exchange currencies, the main one being to allow for easy trade across borders. However, a big number of traders trade in the forex market to make a profit.
Forex trading can be a little tricky because of the volatility of the market. Traders usually speculate on price movements and can make a profit if their predictions were correct. However, price movements aren’t easy to speculate and therefore cause the market to be volatile. This is what makes the market attractive to some traders while repelling others at the same time. The volatility of the market can be beneficial in some circumstances leading to high profits and in other there cases, it can lead to some serious losses.
Timeframes And Strategies Of Forex Trading
There are different types of trading strategies which we will look at shortly. These trading types are majorly influenced by time. This essentially means that the period a trade is open for is the main determinant of the type of trade.
Three main timeframes determine the types of trading strategies. Different types of traders will be attracted to different timeframes and will show different characteristics.
- Short term: These are trades that are opened and closed within a short period. Such trades can last for seconds, minutes, hours, or a day. In some cases, they can last for a few days.These kinds of traders are risk-takers and have a relatively high-risk tolerance. Such trades are usually volatile and come with high risks.
- Medium-term: These are trades that are opened and closed within a moderate period. Such trades can last for a few days or a few weeks. Such trades can be affected by several factors like political risks, economic growth, government debt, etc. which traders must consider.
- Long-term: These are trades that are opened and closed within a fairly long time frame. Such trades can last for several weeks, months, or even years. For longer-term trades, traders mostly focus on assets, their underlying values, their ability to acquire the assets, and the terms of trade.
The different timeframes in trading have essentially allowed for four main types of forex trading strategies to exist. These trading strategies are; scalping, day trading, swing trading, and position trading.
- Scalping – These are short-term trades that can last for a few seconds or minutes.
- Day Trading – These are also short-term trades that last for a trading day i.e. they never hold any open positions overnight.
- Swing Trading – These are medium-termtrades and they can last for several days or even weeks.
- Position Trading – These are long-termwhere positions can be held open for several weeks, months, or even years.
Types Of Forex Markets
A forex market is influenced by the traders in the market and how they choose to exchange the currencies. Essentially, there are three different types of forex markets.
- Spot forex market: This is where currency pairs are physically exchanged. The trade occurs on the spot i.e. at the point where the agreement is made between the traders. They are short-term trades that can occur within a few seconds or minutes.
- Forward forex market: This is where traders may agree on a specific price of exchange that may be settled on a future date or dates if payment is in installments.
- Future forex market: This is where traders come up with a contract that binds the traders to sell and buy specific currencies and a predetermined price I. The future.
Forex exchange is a large market that is used by many traders to make a profit. Many factors are important for any trader to understand before making any investments. For example, when a trader knows how long they intend to hold a position open, they can implement the most suitable strategies.