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Different Types of Forex Trading Methods

The environment of a forex market is different from other commodity markets as it encourages ‘on-the-spot’ trading of currency and at its current value. Owing to this prominent difference, when a trader determines to enter a forex market to reap profits from online trading, they can choose from a number of different forex trading styles, each of which offers them certain advantages. Here are some of the most highly successful forex trading styles that are commonly used across the globe:

 

SCALPING

 

This particular style of forex trading allows forex traders a certain amount of leverage, enabling them to capitalize on small price movements and fluctuations caused by market driving factors. Scalping requires forex traders to repeatedly and rapidly purchase and sell currency pairs based on favorable and unfavorable market trends. The general objective of a scalper is to achieve

between 4 and 15 pips. Scalpers are opportunists who patiently wait for the ideal trading time when the currency market is highly active or when a positive news event or ominous development is expected to affect prices. Scalpers use charts in a smaller intraday timeframe than other trading styles, commonly between 1 to 15 minutes. Scalping is a complex art that requires a strong understanding of the market as well the dynamics that perpetually govern it. Therefore, it is not recommended for beginners.

 

Benefits and Drawbacks of Scalping

In forex trading, Scalping is a specific trading style in which the forex trader makes tens or even hundreds of trades on a daily basis, seeking to secure a handful of pips for every trade. In general, a scalper ideally stays in the trade for less than one minute and bolts the minute their position has captured a few pips. Therefore, the objective of scalpers is to trade to make a handful of points and they do this to reap profits from small movements.

 

Scalping is perhaps the most complex style in forex trading as it demands a considerable amount of time and dedication in order to master. For this matter, it is never recommended to investors who are new to the forex trade or who have little idea of the dynamics that govern it. However, forex traders who have a firm grasp of the complex art as well as the ability to make the right decisions at the ideal time can enjoy a range of benefits from scalping. Here are some of the most important benefits and potential drawbacks that traders typically associate with scalping:

Advantages of Scalping

Minimized Risk – Scalping is a very effective method for traders who seek to use their capital for minimizing risk. This is because scalpers typically invest in tens to hundreds of trade at a given time and this spreads out the imminent risk of loss considerably over many trades. Scalpers follow the ‘Don’t put all your eggs in the same basket’ philosophy as a principle.

Increased Probability of Gains – As investments are spread out over many different trades, there is a higher chance of achieving gains as there is only a distant possibility that all trades will result in a loss. This is a leading reason why many investors of forex trading are scalpers

Focused Trade – Scalping is the most ideal way of earning profits for impatient traders who are willing to religiously devote time and resources to the market.

 

Disadvantages of Scalping

Demanding – Scalping demands a lot of time, dedication, rigorous research and meticulous planning. Moreover, it also requires traders to have a sound knowledge of the dynamics of the forex market so that they are able to make the right decision at the right time. As a consequence, scalping is not recommended for beginners or novices.

Higher cost per unit of profit – Although scalping significantly minimizes the risks that a forex investment would generally involve, the attached cost for every unit of profit that a scalper realizes is much higher than those for long-term strategies. Thus, scalping may not be the ideal forex trading style for investors who lack the resources to invest in hundreds of stock.Fee Payment – It is mandatory for all scalpers to pay a fee of $1 for every Mini Lot which is around 10,000 units of the base currency. This is apart from the minimum $1 that scalpers are required to pay in Trade fee. Although $1 in fee may not seem to be much for bigger investors who regularly trade in millions, other small-time traders may find the fee to be unreasonable.Tweet0 comments Sign in

 

DAY TRADING

 

This is the most common style of forex trading. In this particular type of trade, forex traders secure and dispose of a position within a timeframe of a single day’s trading session. The objective of day traders is to target anywhere between 15 to 100 pips before 05:00pm New York standard time. Day traders usually focus on Euro and US sessions as these provide them with the best opportunities to maximize gains. Day traders use longer intraday charts that can span a timeframe between 15 minutes to 4 hours.

SWING TRADING

Swing traders differ from day traders primarily in the time that they hold an open stock position, swing traders generally hold an open position for 2 to 5 days targeting between 100 to 250 pips worth of profit potential. Trade setups usually revolve around technical analyses based on daily charts.

POSITION TRADING

Position traders are almost similar to swing traders except for the fact that they hold an open position in a currency pair for an even longer timeframe. A position trader typically hold an open position fort 5 to 50 days at a time, targeting between 250 to 1000 pips worth of profit potential. Position traders generally set up their trade based on daily, weekly and monthly charts, also using technical and fundamental analyses.

LONG-TERM TRADING

Long-term currency traders are the least common type of traders in a forex market. These traders have the longest timeframe for holding onto an open stock position. Typically, a long-term stock trader may hold an open stock position for a month, a year, or even several years. Long-term traders generally seek profits from trends that are matured over a long time. The trade is set up using fundamental analysis as well as technical analysis.

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