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Forex trading, as we know, is the trading of foreign currencies. It is the most traded market globally. The currencies are bought and sold by traders using various financial instruments. These could be options, futures contracts or CFDs etc. Foreign currencies are significant for any trade as they allow the purchase and sale of goods and services across borders and nationally. Therefore, the exchange of foreign currencies is necessary for foreign trade.
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ForexTradingStrategies Forextrading,asweknow,isthetradingofforeigncurrencies. Itis themost traded marketglobally.Thecurrenciesareboughtandsoldbytradersusingvarious financial instruments. Thesecouldbeoptions,futurescontracts orCFDsetc. Foreigncurrencies aresignificant forany tradeas they allow thepurchaseandsaleofgoodsand services acrossbordersand nationally.Therefore,the exchangeofforeigncurrenciesis necessaryforforeign trade. Somemajor currencies aremostlyusedas thebase currencies;USD,EUR,GBP, JPY and AUD.However,trading ofthe currencies requiresplans and adequateanalysisof the forex market.Forthat,traders useforeignexchangetradingstrategies.Theseguide them to make decisions and predict market fluctuations—an excellent way to analyse themarketandearnhigh profits. ForexTrading Forextrading hasbeenaround theworld foradecade inthe form ofbartersystemsor servicesfortheexchangeofmoney.However,forex tradingisanew inventionor,better tosay,thenewversionoftrading wherethe oldsystemhasbeenmodifiedwiththe technology.The continuousandnon-stoppablemarketoftrade,wherethetraderskeep engaging intheprocessofforeignexchange.
Thetradewasearlierfinancialinstitutionoriented, but ithasbecome more ofaretail trade now.Allinvestmentsare feasiblewith forex trading,wheretradersoflargeand small investmentscantradein theexchange market. Themostinterestingfact ofthe tradeisits operationwhichistotally onlinehavingnoparticularplace.Traderscan exchangecurrenciesthroughcomputernetworksandelectronicsystemsthatconnect everyone online. Moreover, the market is highly liquid, i.e. the currencies are always available for trade and could be converted into cash anytime. It is traded on over-the-counter(OTC), and theeconomicconditionsofthemarketorthecountries affect itstrading. Waysoftradingforex Forextrading could be carriedoutwiththree main methods. These include spotmarket, forward market andfuturesmarket.Herewehavediscussedthethreewiththeir functions: SpotMarket Spotmarkettradingin theforexmarkethasboostedwiththeelectronicchangesand tradingandthesnowballingoftheforex brokers.Thespot marketisquitebig and dueto the trade ofthe underlying assets offorwardand futures markets. Spotmarkettrading is usedwithinvestorsofallkinds,fromcompanies,institutionsto banksand humans.The other two aresuitableforcompanieswhorequirehedgeagainstthe risks. Inthespot market,the currenciesarepurchasedandsoldin themarketat thetrading price. The priceofthecurrenciesor productsisdeterminedby thedemandandsupply factors.Otherfactorsthat aidincalculating thepriceareinterestrates,economic impacts,politicalsituationsand the predictionsofthecurrency inthe near future.The finaldealbetweentradersiscalledthespotdeal. Inspotdeals, thetwopartiesoftrade exchangethecurrenciesatan agreedexchange rate. Oncethepositionsareclosed,the tradeis settled incash.The spot dateisthe future dateonwhichthetradeissettled,anditismostly twotothree business days.So, it isprimarilytradeinthepresentratherthan thefuture. ForwardandFuturesMarkets A forwardmarketisacontractwhere twopartiesofthe tradeagreetotradethe currencyonafuturedate. The priceofthetradeis predetermined aspertheOTC markets. On theotherhand, futurescontracts aretheexchangeofcurrenciesona futuredatebetweentwopartieson a futuredate at adecided price. Thetrade offutureand forwardcontractsare not basedonthereal-time priceofthe currenciesbuta claimofthecertaincurrencyonafuturedate at aspecificprice. However,thetwomarketsdifferintheir wayof trade.Futures market tradesinthe
currenciesupon astandardised sizeand settledateofthetradeis asperthepublic exchange markets.Incontrast,forward marketsboughtandsoldthecurrencyonOTC betweenthe partiesofthetrade.Theyregulatetheagreementtermsaspertheir needs. • Thetwocontractsarebinding andaresettledincash.However,ifthetraderpurchases and sells the currency before the contract expiry date, there’s no cash exchange requirement.Thus,the contractsactasahedgeagainsttheforexmarketrisks. • ForexTradingStrategies • Forextradehasample opportunities forthetraders,wheretheycan earnprofitsusing certainstrategies.But,asitistradedonglobalmarkets,therisksarealsohigh.Forex tradingiscomplex and competitive,thereforerequirestraderstouse effectivetrading strategies.Forregularsuccessin theforextrade, investorsmustpolishtheirtrading skillsfromtimetotime andunderstandthemarketthoroughly. • Forextradeisimplemented inavariety ofways,andthus,asuitablestrategywillonly benefitatrader.Tradersshouldconsiderallthefactorsofpast trade, experiencelevel andgoal etc.,tobe profitable.Therefore,atradingstrategy should bechosen, keeping inmindthepurposeandtradeinstrument. • Wehavediscussedsomeofthesignificanttradingstrategies: • TrendTrading • Thesimplest andpreferredtradingstrategyoftheforex marketistrendtrading.In this, thetrader followsthecurrentpricetrend ordirectionoftheinstrument.Areliabletrading strategyrequirestraderstohavecompleteinformationabouttheinstrumentand the market.Investorsshouldbe awareofthe duration,trend,andstrengthsofthe instrument.Theknowledgeofthemarket factor-liketheseguidesin analysingthe present trend,currencymarketpriceandwhenthereversalofthe trendwilltakeplace. Tradersofthe trendtrading strategymust know aboutthefactorsneednotbe exact, however. The essentialthing iswhentheycanexitthecurrent marketposition tolimit the lossandlockintheprofits. • Thetrendtradingsupportslong termtrading astherearemanysmallfluctuations againsttheprevailingtrendevenwhenthemarketisgrowing.However,tradersoftrend should bereadyto facesmalllosses astheywillhavegreaterprofitsinthelong run. • Trendtrading usestoolstodetermine the trend,suchas: • SimpleMovingAverages • ExponentialMovingAverages • Moving AveragesConvergence/Divergence(MACD) • Average Directional Index(ADX)
The trend tools of moving averages is a great indicator using the previous prices for getting current market trends. In addition, these also furnish the traders with support andresistancelevelsthat aidtodecideontheentry andexitofthe market positions. • Otherindicatorscouldbeused forpredictions likerelativestrengthindex andoscillators, etc. • Pros: • Reliable • Consistentstrategy • Momentum tradingstrategy • Identifiesentryandexit • Slow-paced • Lowertransaction costs • Cons: • Falsebreakouts • Lowhitrate • Requires continuousfollowing • PositionTrading • Positiontradingisanotherforex tradingstrategythattradersusein ordertohavehigh returns. Thestrategyisrelated tothe position held bytradersinthe market.Itcould last fora fewdays,weeksorayear.The position isheld foralong timeperiodwhere tradersneed amicroviewofthe market.Theyevenhavetosustainsmallmarket fluctuations. • Toolsused: • Analyticaldata • Fundamentalanalysis • Trendtrading • MovingAverages • Thepositiontradingfollowstheapproachoftrendtrading to knowaboutthemarket changes.With this, theytakethe helpofindicatorsofmovingaveragestoknowabout the entry and exit positions—the tool aids in minimising the loss and securing the profits.Analyticalandfundamentalanalysisarealsoimportant factorsfortrading on positions.Theseprovidedata andanalysethe marketforchanges. • Pros: • Lessstress • Mitigatesnoise
Lowmaintenance • Trendcapitalisation • Immunetomarketfluctuations • Cons: • Highcapitalrequirements • Accountliquidity • LowCompounding • RangeTrading • Rangetradingisthe mostsuitablestrategytouseforforextrading.Itletstheinvestors knowabout theprice fluctuations throughchartpatternsandindicators.Basically,a supportandresistancetradingstrategy.Itidentifiesthe highestandlowestpricesofthe instrumentson thechartbeforethereversaltakesplace.Thus,creating rangetrading throughfloorandceilinglevels. • Supportactsas thefloorofthe pricelevels,andresistance acts astheceiling. The market isuncertain,anditkeepsbreakingthepreviousresistancelevels.Thus, creating newsupport andresistancelevels.However,the pricemovesinasidewaysdirectionin rangetradingandremainsenclosed betweenthesupportandresistance. • Inrangetrading,whenthepricereachesthe pointofresistance, tradersexpecta reversal of the trend. Itbringsthetrend ofoverboughtand thussalesinthe market. Whereassupportistheoversoldsituationwherethetradersbuy.However,whenthere isabreakout,anewtrendstartswith newsupportandresistance. • Toolsused: • Supportandresistancelevels • Stochastic Oscillator • RelativeStrengthIndex • Pros: • Smallstartingfund • Chartsandpatterns • Supportandresistancelevels • Entryandexit • Pricefluctuations • Clearstopsandtargets • Cons: • Needsunderstandingofthemarket
Readingofchartsandpatterns • Falsebreakouts • Highcosts • Rapiddecisions • NewsTrading • Theimportance ofnewsalertsinthe forexmarketisthe topmost priority.Asthe forex marketgetsaffected by theeconomic,politicalandotherfactorsofthecountries. It becomesprettyessentialtoknowthehappeningsoftheworld.The newsistheonly sourceofinformationandknowledgeaboutsuchimpacts.Therefore,newstradingis necessaryforforextrading. • Forexmarketisamultinational market thatdealsinalltypesofcurrencypairs. Therefore,understandingtheirpotentialimpactontradeandeconomieswillhelptraders in makingbetterinvestments. • Factorstoknowinthenewsare: • Economicreportsofunemployment,inflationsetc. • Interestrates • Businesssurveys • Reportsonfinancialmarkets • Trendsofthemarket • Allthe factorsofthe marketcarry equalimportance,andtradersshouldbealert regardingthechanges. • ContinueReading………………..
