What are the Different Types of Forex Trading?

7th March 2017

Anyone new to trading may think it’s a simple case of buying currencies at one price, waiting for the exchange rate to increase and then selling for a profit. While this is the basic premise, there are many different strategies and styles that you need to be aware of when trading forex with ADS Prime. Whether you’re just starting out trading forex or are looking for ways to change your trading strategy, these are some of the different ways to trade currencies.

Day Trading

Day trading is probably the most popular way to buy and sell currencies. It consists of traders buying their chosen currency at the beginning of the day and closing a trade by the end of the same day, taking either a loss or profit. This method means you will never hold a trade open overnight, which does put some restrictions on the trades placed.

It is ideal for those who have the time during a day to analyse the markets in the morning, pick a pair to trade, monitor movements and then close it out by the evening. Anyone who likes to have won or lost by the end of the day will be suited to this method too. Those who work full-time will struggle to be a day trader, though it is great for anyone attempting to make a full-time career from forex trading.

Swing Trading

Similar to day trading, swing trading is a relatively short-term method but trades do hold out for longer than one day. For those new to the practice or form whom trading is just a hobby, this can be a lot better as it allows you to monitor the markets at night and make decisions when you are unable to monitor or take action throughout the day.

The main aim of swing trading is to identify medium-term movements, over three or four days, and only enter into trades when there is a high probability of winning. In some ways this can be safer, as you allow trades to last longer so do not have to take a loss at the end of the day. However, volatility is more likely so you need to use larger stop losses as a safety precaution and weather any fluctuations.

Position Trading

Those looking to trade forex in the long term should opt for position trading. With this method, trades can last from weeks and months to years, if you have the dedication. It is a method more suited to expert traders, as a good understanding of the markets, fundamentals of trading and analysis is required.

Understanding how economic and other data affects currency values and predicting changes is essential. Position traders look at technical formations, long term fundamental models and opportunities when planning their trades. As such a long-term strategy, large stop losses are used to prevent big losses. On the other hand, positional traders expect higher profits due to the longer time they are investing in such trades.

Scalp Trading

The quickest type of forex trading, scalp trading is for those who are highly attentive and enjoy the thrill of trading. Trades are opened for a matter of seconds or minutes, with the aim of profiting from small price movements. Therefore, it requires paying a lot of attention to the markets, especially at the busiest times of the day. For those who don’t want to wait days or longer to profit from trades, this is the best method. While it is also suitable for anyone who is impatient and not afraid to change their trading direction quickly.

Decide which of these forex trading types is most suited to you and begin trading or adapting your strategy based on its aims today.

Corey is an all round tech guru who has worked at some major blue chip companies. He started Poweronemedia to share his views and knowledge with the rest of the blogging world.