All too often the forex trade is considered as some kind of alternative investment market. This is primarily a result of the fact that you can’t directly trade currency within stock exchanges — which are what most people think of when they consider the idea of investing. The truth, however, is that the forex market actually dwarfs even major stock exchanges in size. According to a Fullerton Markets article on forex trading that was written just this past summer, in fact, this market is worth about $6.6 trillion.
This number demonstrates how misunderstood forex can be from the outside. But it also speaks to the fact that this market is always growing. That amount of value relates to an immense volume of trades, which can only come about with a steady influx of new traders. So, with new traders entering this market on a regular basis, we’ve decided to take a brief look at some of the essential strategies that forex newcomers should be aware of.
1. Demo Trading
This is not actually an active trading strategy, but it’s certainly a good idea for those new to forex from a preparation standpoint. FXCM’s broad explainer on forex touches on the idea, explaining that it’s now possible for traders to open demo accounts entirely for free. These accounts accurately mirror real-life market activity, but allow traders to participate with what essentially amounts to fake money. In other words, they allow you to trade in a fake but exactly accurate version of the real forex market. There isn’t a better way to learn your way around forex.
2. Trend Trading
As for actual trading strategies in the market, trend trading is one of the most popular options for forex regulars. The trend trading method is explained by Business News Daily as a “long-term approach” meant to be both cost- and time-effective. Essentially, it means predicting or identifying long-term trends in the market, and making purchases that will be beneficial within those trends. In forex, this means forecasting broad economic trends — based on both history and current events — that may indicate a given currency’s prolonged strength or struggle over a matter of months, or even years.
3. Day Trading
Day trading is perhaps what people think of when imagining dealing in forex markets. It is basically the practice of trading in small increments to capitalize on minor price movements, without leaving positions open for prolonged periods of time. Given the aforementioned size of the forex market, there are trades being made constantly, and liquidity is reliable. This means that trades can be conducted quickly as a means of profiting off of even value changes that amount to a fraction of a cent. These trades are often made more valuable by way of leverage, which is another thing to study up on for forex newcomers. But basically the day-trading strategy means investing in minute-to-minute or hour-to-hour movements and closing out positions each day.
4. CFD Trading
There are other strategies for everyday forex trading beyond the popular options of trend trading and day trading. But there are also a few more alternative methods worth explaining, such as CFD trading. Our own post on how to ‘Trade Forex CFDs’ covered most of the basics. To reiterate though, this is a means of trading through contracts (usually on margin, meaning with the use of leverage to enhance earning potential). Contracts express your prediction as a trader of whether a currency pair will gain or lose value over time, turning the investment into a right-or-wrong proposition as opposed to a matter of timing trades. Again, it’s a different way of trading forex rather than an in-market strategy, but it’s one more option beginners should be aware of.