The numerous benefits and advantages of Forex market continue attracting investors from different countries. Despite a certain investment risk, the traders involved are trying to gain profit acting accordingly to any specific trading plans called strategies. Generally, Forex trading strategies are combinations of certain actions and plans of trading activity guiding to obtaining the profit from trades. Indeed, the large number of different strategies were created and successfully used although all of them can be split up into 3 main categories.
Forex strategy categories:
- Speculating. Obviously, all the actions of traders on the market can be considered as a speculation because of getting profit from the price fluctuations. Speculators try to predict the market behavior, i.e. where they believe the price for any stock is going. If trader speculator is certain that a stock is understated he may long buy the stock and wait for the price to rise. After it happens speculator sells the stock and get a profit. Unfortunately, trader speculators are unprotected to market’s ups and downs making speculation strategy highly risky.
- Hedging. This strategy means taking such trading position which is able to balance any possible losses, as well as gains, of the particular stock. Hedging endeavors to remove the stock’s price fluctuations by taking compensative positions opposite to investor’s current. This is low-risk strategy reducing it in the market by taking the opposite side relatively the subject of hedging. As it is seen, the hedgers are defended from losses but also limited with profit. Mostly corporations and large companies use this Forex strategy to hedge against specific business activities to reduce the risk of profit fluctuations and stay protected from any loss risks.
- Other Strategies. Besides Forex trading strategies mostly centered on receiving the profit from the up/down fluctuations of the stock’s price, the other common strategies of trading can be used:
a. Arbitrage trade. This strategy appeared as a result of the non-efficiency of the market. It means buying and selling the same stock on the different markets at the same time to obtain profit from small price differences.
b. Currency Carry Trade. The essence of this trading method is selling the currency with low-interest rate and then using received funds for buying high-interest rate currency.