Foreign exchange (otherwise known as forex or FX) trading is becoming increasingly popular. The latest triennial survey by the Bank for International Settlements, released in December 2019, revealed that daily turnover in the global forex markets reached $6.6 trillion as of April that year.
And the United Kingdom leads the way over the other major trading locations, with 43% of that global turnover arranged by UK-based operators. So, it’s clear that FX trading is big business on these shores and around the world, but what are the different strategies you can adopt when you enter the markets? The approach you take will depend on whether you operate on a short or long-term basis. Here are the key differences between scalping and day, position and swing trading.
This is forex trading in the extreme short term, where positions are open for a matter of minutes at the very most. Scalpers make lots of trades throughout the course of a session, with the aim of accumulating a collection of smaller profits rather than one large one. It’s a rapid-fire method that requires lots of liquidity, so scalp traders tend to operate during the busiest periods and focus on the major currency pairs.
As the name suggests, day traders will open and close their positions during the same day and will not hold them overnight. Some adopt a spread betting strategy to execute their trades and because positions are held for longer than just a couple of minutes, it affords traders a little more time to assess the trends in the markets and make their decisions accordingly.
Swing traders operate over a longer timescale, perhaps maintaining their positions for up to a few weeks. This approach is not as intensive, and allows traders to monitor the movements on an intermittent basis, freeing up time to pursue other interests or assess other markets for potential opportunities.
This is where decisions are made with the bigger picture in mind. Traders adopting this strategy will be looking to capitalise on major price changes, which typically only occur over an extended period of time – potentially months or even years. Because these movements unfold more slowly, position traders can afford to adjust the way they monitor the trends – focusing on weekly or monthly analysis to assess whether things are shifting in the right direction.