Anyone curious enough about trading knows who forex traders are. When you become a part of the trading community, chances are you have just achieved trader status. However, despite being the primary driving force behind trading, prospective traders rarely know what types of traders there are.
Like almost all aspects of trading, forex traders fall into different classes according to what they do, and the mechanisms used to trade. So before joining the trading scene as a trader, first know the basics surrounding the business. Then get a feel of how it all goes down so that you can appreciate the different types of forex traders and trading the market accommodates.
What Forex Trading Is All About
Forex traders are the people doing the buying and selling of currencies. These guys usually operate on the FX market studying trends in currency value and making purchases when the conditions are favorable.
Trading is all about the trader, as it is the trade. As a trader, you will be responsible for buying and selling currency ideally when their value increase suits your profit expectations.
There isn’t a specific trading model in use today. Because of this, different traders use different strategies on the FX market. They are thus sub-divided further according to their trading approach. Read on to find out more about the types of traders that operate on the forex market.
Different Types Of Traders
1. Day Traders
The most popular type of forex trader happens to be the day trader. This kind of trader operates during daily trading up until the market closes. Day traders work in the short-term and often have a relatively fast-paced routine as compared to other types of traders.
Such traders usually hold their positions for short timeframes and ensure not to hold anything overnight. As a day trader, focus on a currency’s price variability and the range it spans during the day.
Price movements, therefore, mark a day trader’s entry and exit points with sometimes shorter timeframes of five minutes. Short-term price changes affect the profitability of such trades and often, traders are keen on events that cause the market prices to switch up or down.
2. Scalpers
Similarly to day traders, scalpers also operate on shorter timeframes daily. However, as day traders typically hold their positions for a maximum of a single day, scalpers live life on the fast lane.
Scalping timeframes are often in minutes and sometimes in seconds. Small price changes occur throughout the day and scalpers are keen to capitalize on their gains. As such, they will make many trades daily with the end goal of accumulating their small benefits into significant profits.
When trading such high volumes, you need to be alert and be driven by instinct in your trading strategy because of shorter timeframes. Additional experience goes a long way in helping to manage the pressure that comes from a fast-changing market.
3. Position Traders
If the fast-paced lifestyle of day traders and scalpers doesn’t appeal to you, then slow things down a notch by position trading. Forget about having to worry about price changes during the day as your timeframe may run up to several weeks, months, and even an annual duration.
Position traders are unbothered by daily shifts in trade positions as they can comfortably hold out for longer than a day trader would consider necessary. As such, position traders are less active on the market than day traders.
Long term price analyses are essential when determining the price movement and generally, how existing trends affect the value of securities and currencies. These traders have access to a wealth of information that they rely on for a better understanding of the FX market at large.
4. Swing Traders
Swing traders lie in-between short-term and long-term traders. While day traders will cease a position at the close of market operations, swing traders tend to hold out overnight, and sometimes this may extend to several weeks. However, swing traders rarely go any further like position traders.
Like position traders, swing traders are in the market for the long haul and are therefore dependent on technical assessments of prices. However, one still needs to be aloof for any events that can cause market unpredictability.
5. Event-Driven Trader
For event-driven trading, fundamental analyses take precedence over technical information on the market. As such, it is highly suited to someone who likes to keep up with world news and events.
Because the market is affected by external factors, currency values move to reflect the local situation. Such events include elections, economic instability or growth, and socioeconomic circumstances like the Brexit situation.
As an event-driven trader, the importance of being in the know. Furthermore, an understanding of how external forces affect the market play is fundamental when it comes to predicting market trends.
6. Algorithmic Trader
Trading today relies significantly on technology to operate. However, there is a class of traders who are more dependent on computer programs and algorithms to carry out trades.
For someone skillful with computers, algorithmic trading should come as an effortless endeavor. In a nutshell, by using computer programs, you can ‘teach’ your computer when to place trades and when to offload the same at the best prices.
Programs rely on instructions that you will have to code or purchase separately. These programs rely on raw trading data and charts to plot the best possible moves on the market.
Trading algorithms are a boon to the trading arena since they take away the need to monitor market fluctuations constantly. However, trading with algorithms suits only those who are at ease with technology and employing it in forex.
With the different ways to trade, you further get different types of traders. All traders have a specific trading strategy that usually plays to their strengths. Therefore, before getting into trading, get to know the different ways to generate a profit from trading first. Afterward, settle on the method that suits your talents and overall strengths then you can dive into the world of FX trading.
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