The rapid evolution and modernization of the global foreign exchange trading markets have necessitated the development of several strategies, governing the purchase and sale of foreign exchange. Some of these strategies are very conservative and plain vanilla and focus on hedging the exposure at all times, while looking to make marginal gains at an appropriate time. Similarly, some other strategies are very complex and require a very intricate understanding of the forex market to be used effectively. A few popular forex strategies prevalent these days are carry trade strategy, forex news strategy, trend trading system and automatic forex system trading.
Carry trade strategy looks to compare the intrinsic interest rates in countries with differing currencies. While interest rates prevalent in any economy are based on the economic policies, a carry trade strategy presumes that a positive interest rate differential between two currencies will tend to appreciate the currency which the interest rate is on an upward trend and vice versa.
Forex news strategy attempts to capture sudden peaks and troughs which may happen in the forex market based on sudden news flashes. The impact of such news could be substantive in forex terms which an astute trader would be able to capture.
Trend trading system looks to make forex strategies based on the trends between two currencies over a period of time. There are certain forex rates like EUR/USD which have been on the upward trend for several years. However, making buy or sell decisions based on long term trends may not always be accurate in case the market is volatile.
An automated trading system looks at defining a set of rules in a software system within which the purchase or sale of currencies can take place. These are more popular as a short term strategy. There are several other strategies which are available in the market, but it is appropriate for each player to decide the strategy which best suits them. It is also important to keep reviewing the strategies periodically and make course corrections wherever applicable based on the movement in the forex market.