Forex trading is some of the most interesting trading done on the global markets day in and out. Forex trading also has some of the most varied types of traders as the markets come to live all day long as a result of timezones and the sheer amount of currencies and currency pairs you could be trading. In forex the most important factor is often timing, as profits in these markets are made from tiny fluctuations in a currency’s value against another currency. Let’s look at the most common types of forex traders in this trading 101 article and what being them or signing with them could mean for you.
The most common, and to many, the most appealing form of trader is the Day Trader. As the name implies, day traders trade during the day, every working day. Day Traders avoid holding any foreign currency overnight to avoid paying the interest of owning said currencies and will look to make dozens of transactions day in and out. Day Traders are short term traders looking for trades with a quick turnover rate to maximise their profits. Traders of this nature are often seen looking at charts that update themselves in minute-long patterns, looking for volatile currency pairs that they can profit from the most. An example pair of this would be GBP/JPY (British Pound/Japanese Yen) as they can fluctuate as high as 100 pips or more in an hour alone. These ranges tend to be lower in other pairs, but are profitable nonetheless.
The next trader type we need to look at is the Swing Trader. Swing Traders use a longer timeframe to trade, holding open positions somewhere from hours to several days at a time. Timing plays an even more important factor for the Swing Trader when compared to a Day Trader as they’re looking to profit the most from a turn in the market, where they would go into profit by entering the market in the first place. A good Swing Trader will often look for very liquid currencies to use such as the US Dollar or British Pound due to their availability to fulfil calls and open positions.
The last type of trader to consider becoming is the Position Trader. This trader normally plays in the longest time frame of the three we’re discussing in this article. Position Traders can hold their positions for weeks, months and in some cases even years. They tend to use more technical strategies and plans and stay strictly for their belief in long-term payoffs. They care a lot more about economic models, government actions, interest rates and other major global economic factors that will determine whether a currency is worth trading. Position traders tend to favor very liquid currencies such as the big 8 as well as that of emerging markets due to the economic upswing a lot of them are experiencing, making for some great long term trade potential, especially if a country’s currency is continuously rising in terms of value.
Regardless of the type of trader anyone wants to be, the same trading 101 principles apply of all when it comes to strategy, emotions, and human error. All three traders are affected by the release of news, whether scheduled or not, as a crisis in one country and throw financial markets across the sea into disarray faster than many people realize.