Presently, a trader uses various Forex currency Trading Strategies to determine if they are going to buy or sell a particular currency pair at a given point in time which depends upon technical charting analysis or latest news from the industry such as interest rate, inflation or other such policies.
Moreover, these trading strategies can be manual or automated. In manual trading, a trader is sitting behind the computer and he is looking for different factors and signals whether to buy or sell a currency pair. However, in automated trading, a trader teaches the computer program to look for the signals and it takes out the human element from trading Forex.
Those traders who are new to the Forex market, and they would like to invest in currencies for such individuals it is important for them to know that there are two major categories in which Forex currency trading strategies falls into one is known as hedging and other is known as speculating.
Let’s imagine a Company A which has sold its product to another Company B which is located in a different country. Company A will be paid in the currency where the sales have incurred which means that there is a chance that Company A can incur loss due to movement in currencies furthermore, in order to protect themselves they go for hedge or trading currency pairs.
On the other hand, in speculation Forex currency trading strategies involves wagering if the currency will go up or down in the near future relative to another currency and based on their judgment they take the decision. In addition to, another Forex currency trading strategy is arbitrage where traders buys and sells the same currency at different prices in order to make some profits which is risk free. However, in order to take advantage of these opportunities a trader needs to closely monitor the market and take decision as soon as these opportunities appear.
Lastly, another trading strategy is carry trade which basically works by selling a currency with low interest rate and buying currency with higher interest rate. This method is profitable only when the correlation between these two currencies is relatively stable. Furthermore, this method is usually adopted by large investors instead of small investors as the volume traded is much higher. Moreover, if the market is highly volatile then investors tend to turn away from the carry trade method as it is not favorable.