EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login
Home Finance Finance Resources Trading for dummies Forex Trading Strategies
Secondary Sidebar
Finance Blog
  • Trading for dummies
    • Trading in Forex
    • Contango and Backwardation
    • Commodity Trading
    • How to Trade Options?
    • Dimsum Bond
    • Nostro Account
    • Temporal Method
    • Spot Market
    • Pink Sheets
    • Trading Floor
    • Pump and Dump
    • Market Maker?
    • Pre-Market Trading
    • Publicly Traded Companies?
    • Share Swap?
    • Risk Reward
    • S&P 500 PE Ratio
    • PE Ratio of Nifty
    • Sharpe Ratio
    • Bull Trap
    • Fundamental Analysis vs Technical Analysis
    • Ripple vs Bitcoin
    • Ripple vs Litecoin
    • Sell Side vs Buy Side
    • Gamma Function Formula
    • Bitcoin vs Blockchain
    • Bitcoin vs Litecoin
    • Call Option vs Put Option
    • European option vs American option
    • Futures vs Forward
    • Stop Loss Order
    • Hyperledger
    • Floating Stock
    • Option Adjusted Spread
    • Penny Stocks
    • Contango vs Backwardation
    • Investing vs Trading
    • Features Of Convertible Bonds
    • Confirmation Bias Example
    • Currency Trading
    • Indian Stock Market
    • Invest in Fundamentals
    • Futures Trading
    • Technical Analysis Indicator
    • Forex Trading
    • Commodity Trading
    • Forex Trading Strategies
    • Futures Fundamentals
    • Play the Stock Market Game
    • Binary Options Trading
    • Commodities Stock Market
    • Trading Tools
    • Mistakes to Avoid While Day Trading
    • Bitcoin vs Ethereum
    • Future vs Option
    • Option vs Warrant
    • Stock Market Trading
    • Proprietary Trading
    • Employee Stock Options
    • Litecoin vs Ethereum
    • Forex Trading For Beginners
    • Variance vs Covariance
    • Trading Securities
    • Stock Futures Trading
    • Above the Line vs Below the Line
    • Stock Market Chart Patterns
    • Swing Trading Strategies
    • Currency Exchange Market
    • Forex Brokers
  • Accounting fundamentals (700+)
  • Asset Management Tutorial (200+)
  • Banking (44+)
  • Corporate Finance Basics (373+)
  • Credit Research Fundamentals (6+)
  • Economics (88+)
  • Finance Formula (386+)
  • Financial Modeling in Excel (17+)
  • Investment Banking Basics (140+)
  • Investment Banking Careers (29+)
  • valuation basics (27+)
  • Insurance Resources (14+)
  • Top Finance Books (7+)
Finance Blog Courses
  • Online Cryptocurrency Certification
  • Online CFA Level 1 Training
  • Equity Research Training

Forex Trading Strategies

By Madhuri ThakurMadhuri Thakur

Forex Trading Strategies

What Is The Forex Trading Strategies?

Forex Trading strategies – Have you ever wondered about the import-export happening in the countries?

Consider, If India exports its Alphonso mangoes to the US, then what will it receive in return? any guesses?… US mangoes? US goods?

No!!! But the Money. Some of you may have the question here that “which kind of money will India receive?” If it receives dollars, then what government will do with the dollars, will it circulate for the daily use with Indian rupees?

       Again the answer is “No!!!”

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

The dollars given by the US are converted into Indian rupees, and then they will be circulated for the use in the country. You must be wondering that how this conversion must be done? By doing some magic tricks or printing the dollars in the rupee form.

Let me help you out in clearing this confusion.

All in One Financial Analyst Bundle(250+ Courses, 40+ Projects)
Financial ModelingInvestment BankingUS GAAPCFA-Level 1 & 2
Equity ResearchM & A ModelingPrivate Equity ModelingForex Trading
Price
View Courses
250+ Online Courses | 40+ Projects | 1000+ Hours | Verifiable Certificates | Lifetime Access
4.9 (86,522 ratings)

The foreign exchange market, which is usually known as “forex” or “FX,” is the largest financial market in the world with a $5 TRILLION a day trade volume. 

Below is a forex trading strategies chart from which you can get an idea of what kind of trading must be happening in the forex market.

Average-Daily-Trading-Volume-forex-trading-1024x732 

What is Forex Trading Strategies (Forex)?

Foreign exchange refers to an exchange of currencies. It is the trading of currencies from different countries against each other. The FX market is the place where different currencies are traded.

What is traded in the Forex market?

Nothing but the MONEY. As there is no physical buying or selling of goods, it can be a bit confusing.

  • Think of buying a forex trading strategies currency as buying a share in a particular country, kind of like buying stocks of a company. The price of the currency is a mirror that shows what the market thinks about the current and future health of that Country’s economy.
  • When you buy, say, the Australian dollar, you are basically buying a “share” in the Australian economy. You believe that the Australian economy is doing well and will even get better as time goes. Once you sell those “shares” back to the market, hopefully, you will end up with forex trading, meaning profit.

It is clear that it is all about the trading of money, but where is the Market or the place where this trading takes place?

Hold on!!! There is also a concept called FOREX Market, which is explained in the following paragraph.

FOREX Market

The foreign exchange market (FOREX Market) is the World’s biggest O-T-C market or the “Interbank” market due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.

Currency-Exchange-300x225

This means that the forex market is spread all over the globe with no central location.

Forex market is the most liquid market in the World. Basically, you buy one forex trading strategies currency and sell the other for the purpose of making a profit. The main goal is to make a profit when the exchange rates of the currencies traded move as per your speculation. More than 90% of all currencies are traded against the US Dollar (USD).

How Does Forex Trading Strategies Work?

Forex Trading strategies are similar in concept to share trading that is, as a trader, if you choose a currency pair, which accordingly you expect to change in value; that is if you had purchased 500 Euros in June 2012 of cost $700 USD and after waiting for some time like 10-12 months the value has increased such that 500 Euros valued at $800 USD then you want to book profit with a gain of $100 dollar.

How-Does-Forex-Trading-Work-300x200

 

These trades are placed through forex trading tips broker or market. And the process of placing orders is very easy with just a few clicks. In the next step, the Broker will pass the order to the partner bank, where your position for that order is booked. When you want to come out of trade broker will close the position in the market. Thus as per market conditions, accordingly, credits or debits happens in your forex trading tips account.

Reasons for Foreign Exchange Trading

  • <Global Business Operations

In the global market today, businesses today are operating all over the world as products or goods are transferred from one country to another country. For that purpose, the currency of countries differs; for example, India’s currency is Rupees, and that of US currency is dollars. Hence in that case, for a successful trade, they need to exchange their currencies.

  • Profit Speculation

As there are traders or individuals who see the Forex for profit-making purposes. These people if expect one currency to rise against another, then they will make a trade on that currency.

  • Brokerage Purpose

As the forex trading strategies institutes or the individuals trading in foreign exchange receives various prices from banks or other networks, they tend to receive brokerage in trades.

The major participant in the FOREX market

Following are the major participant in the FOREX market

  • Financial Institution
  • Corporates
  • Banks
  • Government
  • HNI (High net worth individuals)
  • Hedge Fund
  • Mutual Fund
  • Pension Fund
  • Insurance Companies

List of some currencies with their country name:

Country Currency Code Currency
AUSTRIA EUR EURO
AUSTRALIA AUD AUSTRALIAN DOLLAR
BELGIUM EUR EURO
INDIA INR Rupee
CANADA CAD CANADIAN DOLLAR
SWITZERLAND CHF SWISS FRANC
GERMANY EUR EURO
UNITED KINGDOM GBP POUND STERLING
JAPAN JPY YEN
NORWAY NOK NORWEGIAN KRONE
SWEDEN SEK SWEDISH KRONA
UNITED STATES USD US DOLLAR
China CNY Yuan

From the above table, you might be running in confusion about how the currency code is decided?

Here is an answer to your confusion…

Currency symbols are always indicated by three letters, where the first two letters recognize the name of the country and the third letter recognizes the name of that country’s currency.

Take USD, for instance. US stands for the UNITED STATES, while D stands for Dollar.

Notation

Forex trading strategies are the simultaneous buying of one currency and selling another. So it is clear that for trading the currencies, we require a pair of currencies. That is, the trader is buying one currency against another currency. It is expressed in a standard manner,

For example, USD/GBP, EUR/JPY are known as Currency pairs. The first among the pair is known as “Base Currency”, and the other one is “Quote Currency”. Here USD, EUR is the base currencies and GBP, EUR is the quote currencies.

The quote values are given to the fourth decimal point, i.e. USD/GBP 0.6734 0.6741

The first numerical value in the above notation denotes the amount of GBP that is equivalent to one USD. Here the difference between the prices shown is counted to the fourth decimal place, and it is known as a pip.

In our case, there are 7 pips.

Another example,

Forex-Trading1

Currency Composition of Official Foreign Exchange Reserves (COFER)

According to the International Monetary Fund (IMF), the U.S. dollar comprises roughly 61% of the world’s official foreign exchange reserves!

There are some other vital reasons why the U.S. dollar plays a central role in the forex market.

  • The United States economy is the LARGEST economy in the world.
  • The financial markets are the largest and most liquid in the United States.
  • Also, being a strong country, it has a super stable political system.

 

Currency-Composition-of-Official-Foreign-Exchange-Reserves-COFER

Source: International Monetary Fund

Different Ways to Trade Forex

There are different ways in which Forex trading strategies are done. The most popular ones are:

Spot Market: In the spot market, currencies are traded immediately or “on the spot,” using the current market price. What is important about this market is its simplicity, liquidity, tight spreads, and round-the-clock operations.

Futures: Futures are contracts to buy or sell a certain asset at a specified price on some future date. It is a binding contract between the two parties (buyer and the seller), which allows them to trade a certain amount of currency pair at a predetermined price in future time.

Options: An “option” is a financial instrument that gives the buyer the right or the option, but not the obligation, to buy or sell an asset at a specified price on the option’s expiration date. If a trader “sold” an option, then he or she would be obliged to buy or sell an asset at a specific price at the expiration date.

Exchange-traded Funds: Exchange-traded funds or ETFs are an investment fund which is traded on the stock exchanges like shares. They are invested in a single currency or basket of currencies. The investors who are not more inclined towards futures or forex markets uses currency ETF’s.

Benefits

Benefits of Forex Trading Strategies

  • Time and place flexibility– As we know, the market is open 24 hours each day, so we don’t have to worry about managing our own time. Also, we don’t have to visit any place or location for trading purposes. It can take place from any part of the world.
  • Highly liquid market – The market is so huge that it is extremely liquid. Around 4 trillion dollars are exchanged every day. By using the benefits of Stoploss, you can keep an eye on the market conditions without causing much loss.
    • Low transaction costs – The transaction costs are determined by the bid/ask spread, which is usually less than 0.1%, and in the case of large dealers, it may be even lower.
  • Margin-Based Trading– Once you have funded a margin account with your broker, you can engage in any trading activity you wish so long as you have sufficient margin remaining in your account.

Risk in trading

Risks in Foreign Exchange Trading

As we know, every coin has two sides; we need to focus on the other side as well.

There are some risks that are associated with Foreign exchange trading. 

  • Exchange Rate Risk: This type of risk can arise when there is an imbalanced supply and demand situation in the forex market. So traders have to be careful in terms of putting limits on trades in the form of stop loss.
  • Interest Rate Risk: These are the risks that are related to futures, swap and forward trading. This is due to the fluctuations, maturity gaps and amount mismatches that occurred in the trade.
  • Country Risk:This risk is very crucial because of the interference of the government involved in the markets. Sometimes a party may receive some unexpected return due to the country’s policy and norms incorporated by a government.

Recommended Articles

Here are some articles that will help you to get more detail about the Forex Trading Strategies, so just go through the link.

  1. Forex Market
  2. Market Risk Premium
  3. Mutual Fund and Exchange Fund
  4. Forex Traders Jobs
Popular Course in this category
All in One Financial Analyst Bundle- 250+ Courses, 40+ Projects
  250+ Online Courses |  1000+ Hours |  Verifiable Certificates |  Lifetime Access
4.9
Price

View Course

Related Courses

Cryptocurrency Training (9 Courses)4.9
CFA level 1 Course with Mock Tests & Solutions (20 Courses, 3+ Mock Tests with Solutions)4.8
Equity Research Training (17 Courses)4.7
0 Shares
Share
Tweet
Share
Primary Sidebar
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

ISO 10004:2018 & ISO 9001:2015 Certified

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Financial Modeling Course

3 Statement Model Creation, Revenue Forecasting, Supporting Schedule Building, & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more