The forex market is the most active financial market in the world.  About $4 trillion of currencies are traded daily around the world by hedge funds, investment banks, central banks, multinational corporation and individual day traders.  The following are the forex trading strategies that are currently being utilized to trade the largest market in the world.

An estimated 70-98% of trading activity in the currency market is speculative.  That means a majority of the trading that happens in this market is strictly for profit.  Only a small percentage is traded for end use, i.e. buying CAD so you can buy oil and other commodities, or for hedging risk.  The rest is traders trying to make a profit on the fluctuations in the market.

Strategies for hedging and risk management are different that those of speculators.  I will mostly focus on forex trading strategies that are used by speculators.  Included are some forex trading tips for new traders.  It’ll help you get started and point you in the right direction or help you decide not to engage in that particular strategy.  This is a general overview of the strategies and systems that people use.  You can find more detailed information in the rest of this website.

Forex Margin Trading

Virtually all day traders use a margin account to do their trading.  Using a forex margin account essentially allows you to leverage a relatively small amount of your money to trade with your forex broker’s money.

Most leverage ratio’s are 100:1.  That means you can trade up to $100 for every $1 of your money you have on deposit.  It will most likely look like you putting $1,000 on deposit giving you the ability to trade as much as $100,000 on the market.  Some broker’s offer leverage as high as 200:1.

This allows you to be able to make significant profit on very small, incremental changes in currency exchange rates.  There aren’t many days in the forex market that offer the extremely volatile fluctuations that would give a trader an opportunity to make big profits.  Most days exchange rates fluctuate only fractions of a penny.  Without margin trading, most traders would not be able to make significant profits with strictly their own funds.

Forex Arbitrage

Another popular forex trading strategy is doing arbitrage trading.  This essentially exploits any market price inefficiencies in the market.  Forex arbitrage has to be a quick trade because as other traders identify the inefficiency, the opportunity quickly vanishes and the market is corrected.

In real life, it usually involves 3 or more different currency pairs.  It can also be done by taking advantage of rate differences among different forex brokers.

However you do it, it can be a very complicated trade.  You can download a forex arbitrage calculator to quickly process the rates for opportunities.  There is also automated platforms to help you execute these types of trades.  Most traders use arbitrage as just one among other forex trading strategies because opportunities may not always be readily available.

Forex Managed Account

This is the lazy man’s way of trading the market.  Forex managed accounts are like mutual funds in the forex market.  You basically let a money manager trade your money on the market on your behalf, and then pay him a management fee to do it.

This is a great strategy for someone who wants to profit from this lucrative and active market, without having to learn how to trade and without having to sit in front of a computer monitor all day.  These managed accounts are run by highly skilled and experienced currency traders.  You end up leveraging their assets to make money.

Technical Analysis

Most looking to make a profit speculating in this market use technical analysis to find trading opportunities.  This strategy looks at chart patterns like head and shoulders or trend lines to identify trades.  This strategy also analyzes things like the Elliot Wave, Fibonacci ratios and moving averages (MACD) to predict price movements.

Fundamental Analysis

Fundamental analysis looks at economic data and global events to trade the market.  This would consider announcements and actions taken by government central banks like the US Federal Reserve or the Bank of England, to make their trades.  It would look at jobs reports and consumer spending data in developed countries, GDP growth rates in developing countries like China and world commodity prices to make determinations on how the currency market will behave based on fundamental elements.

In the fundamental analysis approach, you should master one or two currency pairs to begin with and learn all of the factors that cause it to move.  For example, the Canadian dollar (CAD) is heavily reliant on commodity prices for it’s value.  So when there is a global boost in production and there is an increasing demand for commodities like oil, the CAD tends to rise with it.

Keep it Simple and Become a Master

The last thing I would say as you develop your forex trading strategy is to keep it as simple as possible.  It is easy to overcomplicate things, especially in doing something like this.  But try to keep it as simple as possible to a level where you will be able to execute your strategies well.

Also, make it your goal to master one or two strategies that will work for you and you are able to be successful with.  This will allow you to keep your focus and have a better chance of making money in the end.

In addition, whatever strategy you employ, make sure you practice it first one a forex demo account before you trade real money.  Paper trading will help you figure out if it is the right method for you.  But if you never practice, a broke account might be what makes the decision for you.