There are four major types of forex trading systems: scalping, swing trading, day trading and longer term trading. Different trading systems depend on the duration and timeframe of time the trade will be open for. Day trading, which is one of the simplest, is most likely the chosen trading strategy by new forex traders.
Forex speculation is done in pairs such as USD/CAD or GBP/USD/CHF. The pairs are selected to have enough volatility to be able to fluctuate, either up or down, without causing excessive loss. These particular pairs represent currencies that are bought and sold by traders on the global exchange. Forex speculation is done twenty-four hours a day, six days per week. The constant buying and selling of these contracts by traders place a high demand on market liquidity.
Scalping theory is when traders buy and sell a contract within a very short time frame such as within the span of a few seconds. Most scalpers use leverage ratios to reduce risks and increase the profit potential. Longer time frames are used by day traders or scalpers because they have lower trading costs.
Swing traders and day traders rely on forex brokers to execute their trades. Forex brokers will provide a platform where currency traders can connect with each other to execute the forex transactions. The platform enables the traders to enter into long or short positions as well as execute their transactions. Forex brokers also provide traders various options. Some of these include allowing users to choose the market rates, offering the facility of margining, giving traders the option of carrying a stop-loss and providing other relevant features.
Forex traders are usually individuals who are involved in the Forex market for personal investments or to make a quick profit from it. They use different types of strategies to make money from foreign exchange trades. There are people who trade solely for speculation while there are others who trade depending on trends. There are people who invest on a long term basis while there are others who use a short term approach. The best way to choose a Forex broker is to consider your investment objectives and risk appetite before selecting a foreign exchange account.
Futures and Forex trading currencies are bought at the current price and sold back at a higher price in the future. The trader will make his payment in advance and wait for a profit or loss in the future. Futures and Forex trading can be traded on exchanges such as CFTC, E CFB and NYSC. Forex markets are open for twenty-four hours and there is a limit of three transactions per day. There are two types of trading: the spot market and forward markets.
Spot market: This is where a buyer makes an agreement to sell more products at a certain price on or before a specific date. The same goods are purchased by the seller at the same price. When the value of the product is higher than the agreed upon amount, then the trader makes his sale and the difference is his profit. When there is a deficit, the trader will have to buy one more commodity to fulfill his contract. These contracts are normally done in US dollars, British Pound Sterling, Euro, Japanese Yen and Australian Dollar.
On the other hand, in the forward market, a trader purchases goods or commodities and resells them when the prices are higher than the agreed upon amounts. In order to engage in this business, a person needs to have knowledge of the commodities or goods to trade such as energy, fixed income securities, equity securities, stocks and bonds. The Forex trader should be experienced enough to evaluate and foresee the market trends. This knowledge will help him decide on the type of trade to engage in and also to anticipate any changes in the market trends.