Three Basic Forex Strategies

There are several different ways to look at Forex trading. When examining the Forex Market, it is important to understand what kind of trading you want to engage in, and make a plan to do it successfully. Talk it over with your Forex EA or Forex Broker to make sure this strategy is best for you. Here are three of the most common and most effective strategies:



Carry Trading



Carry trading is a pretty effective way of trading currency. You study your Forex Analysis and Forex Signals so you can determine a currency that has a high interest rate, and hold it against a currency with a low interest rate. You will then get paid daily for the difference in interest between the two currencies. Also, you get paid on the leveraged amount, not on the amount you have actually paid, so that is another reason people are drawn to this strategy.



This strategy can be very risky, though. The currencies that are best for tis kind of trading are also very volatile. When everything is going well, the gains are pretty good. If something around the world that spooks the international market, these currencies will tank, and you can lose a lot of money, especially if you are over leveraged.



Trend Trading



Another good strategy that people just entering into Forex markets like is to follow the daily and weekly trends of the Forex Market. You can look at the daily and weekly charts and see if you can find something that is well supported and get in. When using this strategy, though, you will want to enter in conservatively. Make sure you have determined a stop that works for you, and stick to it. Just be careful, because, what may look like a small move may actually be several hundred pips. Lots of people like this strategy because it does not require constant observation. You can check the market when it is convenient for you, and trade when it seems right.



Fundamental Trading



For the more cautious investor, they are less interested in getting signals from their Forex Trade Copier program, and more interested in learning about the trends of the actual countries. This type of investing requires people to research the economics of each country by following the news and paying attention to their trends. This investor will then make decisions based on what they are seeing in the news rather than on investor charts.

Understanding the Forex Market

The foreign exchange market, also known as Forex or FX, is the global decentralized market for the trading of currencies. The primary players in Forex are the international banks where they interact with buyers and sellers around the clock and determine the relative values of different currencies.


The Forex market operates on several different levels where the major financial institutions connect with smaller financial firms (known as ‘dealers’) which helps lend to the term the ‘interbank market’.


The risk is high on the foreign exchange market where deals may extend to several million dollars ultimately with the intent to enable fair currency conversion in order to assist with international trade and investment.

History
 

After World War II the Bretton Woods system established a system for monetary management which would later transform into Forex analysis and the overall exchange protocol.

 

Prior to World War II government restrictions on foreign exchange transactions restricted growth of the global economy because exchange rates were fixed. Forex was established and the rest they say is history.

Forex Characteristics
 

Forex is considered to be the nearest ideal to the concept of competition, debatable perhaps, yet it is hard to ignore its profound effect on the world economy.

 

The foreign exchange market is unique due to its floating exchange rates not to mention its continuous operation 24 hours a day (excluding weekends).

Forex Software
 

The geographical dispersion of the market is affected by several factors some of which are predicted and assessed by software like Forex EA and Forex trade copier.

 

After dealing with a Forex broker financial institutions operate on the market to produce a massive trade volume designed to solicit high liquidity. It is all about leverage because institutions seek to enhance profit and loss margins with respect to the size of the account, and seems to be working after averaging $5.3 trillion in trading per day in 2013.

 
Trading Suggestions
 

The FX utilizes Forex signals which are a suggestion for entering a trade on a currency pair at a specific time and price. The signal may be generated by an analyst or the aforementioned Forex software.

 

The services provided by the signals go into 4 primary categories:

 
Free signals
Paid signals from 1 provider to another
Paid signals from more than 1 signal system or source
Signals from the Forex software (AKA a Forex bot or expert advisor)

The Foray into the Forex

The forex market stands for the foreign exchange market. Foreign exchange is exactly what it sounds like, exchanging one currency into another currency, usually for either commerce or tourism.

One of key terms to know is, which is defined as the smallest change in price that any single exchange rate can make. Most of the currencies exchanged in this market are priced out to four decimal points which means that the smallest change that can be made is that last decimal point. This equates out to 1/100 of one percent – one point or .

Generally speaking, there are three types of accounts you can set up.

Standard Trading Accounts

This type of account is the most common. The name itself means that you can access standard “lots” of currency, typically worth $100,000 each.

Pros: This particular type does require significant capital investment up front, so you will receive a higher level of service and more perks from yourforex broker. It also has the most potential gain involved.
The major disadvantage is the necessary amount of money up front, usually a minimum of $2,000 and can be up to $10,000. And with the pro of having high potential gain also comes the high potential of loss.
Mini Trading Accounts

These are more simple accounts in that they allow traders to complete transactions using smaller lots, $10,000 or 1/10 of a standard account

Pros: Experienced traders can test new methods of forex analysi because there is not as much money on the line per trade. It also works for new traders who are just starting to learn about forex signals
Cons: With less risk comes less potential for reward.
Managed Trading Accounts

These are more like mutual funds in that the financial investment is yours but the individual transaction decisions are not.

Pros: A professional broker will handle these accounts, most likely using their forex expert advisor tools, or forex EA Cons: Not only do they usually require a minimum of $2,000 but the account managers will also take a commission.

Many banks, both commercial and investment, perform these trades for their clients but the practice thereof has created an environment for speculative trading using online services. You can also look into a forex trade copier which will duplicate trades completed by a broker into your personal account without you having to manually replicate each transaction.