The foreign exchange serves as one of the most challenging and rewarding financial environments in the world, while it also boasts a level of diversity that few other markets can match. Most importantly, its high level of liquidity ensures that the market and its prices remain largely impervious to high volumes of trading.
With this in mind, Forex currency trading offers potentially significant returns to traders who are willing to build a core base of knowledge and develop viable market skills. The level of complexity involved depends entirely on your own individual trading strategy, although there are a number of advanced techniques that offer more reliable results.
With this in mind, which individual trading techniques are among the most popular in the Forex market? Consider the following three advanced Forex trading strategies to build profit: hedging, Forex news trading and position trading.
For traders with a slightly risk averse approach, hedging has emerged as a genuinely viable investment technique. It is essentially a method that minimizes risk by allowing investors to position themselves on both sides of a trade simultaneously, and it is perfectly suited to the volatile movements of the Forex market. The most common example of Forex hedging occurs when a trader initiates a long and short position on the same currency pair, with a view to guaranteeing some form of return and offsetting any potential losses. Although more experienced trades may choose to hedge against two individual currency pairs, this is a complicated technique that depends on a far greater amount of variables.
Forex news trading is an extremely popular method of investment, although it requires a fairly in-depth understanding of how wider economic events impact on the foreign exchange. This requires a certain amount of determinism, as traders must base their entire trading strategy on specific news events and the underlying laws that govern change in the financial market. It is a trading method most suitable to those with experience of the foreign exchange and its volatile price movements, as novice investors can struggle to understand the relationship between news and events and real time shifts in the financial markers.
One of the most advanced Forex investment methods is position trading, which is fundamentally based on your overall exposure to a particular currency pair. As an investor, your position relates to the average price of a selected currency pair, which will be set across the number of individual trades that you execute. If you were to take a short position on the GBP/USD at 1.40, for example, and then repeat the exercise after the price moved upwards to 1.42, then your average position would be confirmed at 1.41. In this instance, you would be in profit once the price dropped back to below 1.41, so such a trading method requires a great deal of diligence and an ability to preempt market trends before the take hold.
In conclusion, while there are numerous examples of effective Forex trading strategies, these represent the most popular among investors. When choosing a method of trading to suit your own circumstances, however, it is important to give careful consideration to your existing knowledge base and the fundamental philosophy that drives you as an investor. Without this intuitive self-awareness and understanding of your individual strengths and weakness, you run the risk of selecting an entirely inappropriate method and diminishing your potential returns.