Forex is the largest marketplace in the world for trading in currencies. At first, it is quite simple. But when you try trading Forex, it can be as simple or as complicated. Individual traders, financial institutions, brokers, ab institutional investors use Forex for trading.
However, forex trading takes time, patience, and experience. You will need a combination of fundamental and technical analysis skills. You also need an understanding of the factors that move the currencies traded on the foreign exchange marketplace.
Here are 4 advanced techniques to trade Forex.
Hedging Forex
Hedging is a way to reduce risk by taking both sides of a trade at once. Advanced traders sometimes use two different pairs to make one hedge, but that can get very complicated. If your broker allows it, an easy way to hedge is just to initiate a long and a short position on the same pair.
Take an example, you want to go short on the U.S. dollar and the Swiss franc (USD/CHF) because you see it sitting at the top of a recent price range. You decide to initiate your short. After setting up your short, you start thinking that the USD/CHF is looking a little strong, and you think that it might break upward and make your short an expensive one.
Then, you find that the euro to dollar pair (EUR/USD) tends to move inversely to the USD/CHF. Finally, your short EUR trade becomes a winner and USD/CHF is a loser.
Position Trading
The trading is based on your overall exposure to a currency pair. Your position stands for your average price for a currency pair.
For instance, you might make a short trade on EUR/USD at 1.40. If you take another short at say 1.42, your average position would be 1.41. Once the EUR/USD drops back below 1.41, you will be back in overall profit.
Trading Forex Options
A forex option is an agreement to purchase a currency pair at a predetermined price at a specified future date.
Specifically, you are long the EUR/USD at 1.40 and you feel that there is a chance that it will fall to 1.38 in overnight trading. Then, you decide to put a stop at 1.3750, setting up a potential loss of 250 pips. If the EUR/USD goes up and never touches 1.3750 overnight, you would lose the premium that you paid for your currency option.
Scalping
Scalping typically is best done in conjunction with a news release and supportive technical conditions. The trade can last anywhere from a few seconds to a few hours. Many beginning forex traders start with scalping. But, it does not take long to figure out how much you can lose if you do not have any idea what you are doing.
If you are going to make scalping trades, it is best to do them in conjunction with your overall trading position, not as a primary method of trading.
