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Different Types of Forex Traders

Fxdatapanel03 Oct 2022Forex Trading Guide

Different Types of Forex Traders

One can easily classify Forex Traders into three categories. These include

  • Position Traders
  • Swing Traders
  • Algorithmic Traders

The main objective of forex trades is to trade currencies. In other words, they speculate about the future price movement of currency. Like stock traders, Forex traders try to buy or sell currencies that they believe will rise or decrease in value. The primary Forex market is the spot market, which determines the exchange rate in real-time and where traders buy and sell the currency pairs.

Related Article: Who Controls the Forex Market?

Let’s find out more about these three types of traders

Position Traders

Position traders focus on long-term trends and fundamental factors. These traders don’t trade on minor market fluctuations and may have to hold their trades from several weeks to months and sometimes years. They use technical and fundamental analysis to make their decisions to stay profitable. A standard technical indicator position traders use is the 100-day simple moving average. This indicator is considered a highly accurate indicator of long-term trends.

Position traders are long-term investors who hold positions in the foreign currency market for several weeks, months, or even years. Their goal is to capture most of the trend, not the small fluctuations. Position traders use a combination of fundamental and technical analysis, looking at macroeconomic indicators and the commitment of other traders to make their trades.

Swing Traders

Swing traders use longer-term trends and volatility to their advantage, often making more profits than shorter-term traders. Swing trades are also less prone to false signals or noise than shorter-term trades. Swing traders also use technical analysis to simplify their trading processes.

Swing traders typically follow major currency pairs such as the EURUSD and USDJPY. This type of trading strategy is best suited to volatile markets and offers frequent trading opportunities. However, it is essential to remember that the reward-to-risk ratio should not be greater than 3:1.

Algorithmic Traders

Algorithmic traders or Algo traders use computer algorithms to buy or sell a currency at a specific price. They base their criteria on past price movements, profit/loss ratios, and historical data. They can also use breaking news and trends to guide their trade decisions. This kind of trading requires a high level of technical analysis and has two significant advantages over human traders.

In Japan, algorithmic trading accounts for a large share of the market volume. This proportion increased to 70 percent in the FX spot market in 2019, and more than 70 percent of orders placed on the Tokyo stock exchange come from algorithmic trading. However, in emerging economies, the role of algorithmic trading is much lower.

Related Article: The Best Times to Trade Forex

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