Trading Strategies on the Forex Market

Every trader who embarks upon trading on the forex market is concerned about the stable income that can be received on the market. In order to generate profits on forex one should work out a trading system or a trading strategy which would include a set of rules to follow while trading on the forex market. There are a lot of trading strategies devised by forex players which guarantee profits in a particular market situation. Successful traders dispose their own forex strategies which they do not share with others as these strategies serve as the instrument of their earning for a long period of time.

As far as beginners are concerned, they should not dream of millions at the very start even employing the most sure-fire method of trading. There is a huge risk of losses as the market is constantly changing and the newcomers cannot get adjusted to the new market conditions at once. In fact, forex strategies are developed under the influence of the state of disappointment or, vice versa, rejoicing.

There are several universal trading strategies on forex which enable a trader to keep his head above water for a certain period of time without facing losses. Generally speaking, it is essential to practice a forex strategy on the market because any occasional methods of trading do not lead to a positive outcome. That has been multiply proved. Moreover, they cannot ensure a stable profit.

Experienced traders claim that a personal forex trading strategy is maximally effective and convenient for a particular trader. In fact, an active and risky person would not use the same strategy as his more careful and meticulous market colleague. Only relying on the trading experience one can adopt an own convenient way of trading otherwise the rules which do not coincide with your opinion or position will not work efficiently.

Preparing a trading strategy is a complicated process which consists of several interconnected steps. Besides, a trader should also take into account his character and preferences while designing a trading strategy. Undoubtedly a trader should be well informed and acquainted with the process of trading and the common risks typical of the forex market.

Composing a trading strategy may include the following steps:

• - Formulating a trading strategy
• - Writing down the rules of the strategy in a particular form
• - Testing the strategy
• - Optimizing the strategy on historical data
• - Trading on forex exploiting the strategy
• - Keeping track of the trade effectiveness when using the strategy
• - Improving and advancing the strategy

Market participants

Unlike a stock market, the foreign exchange market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest commercial banks and securities dealers. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and not known to players outside the inner circle. The difference between the bid and ask prices widens (for example from 0-1 pipto 1-2 pips for a currencies such as the EUR) as you go down the levels of access. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" (the amount of money with which they are trading). The top-tier interbank market accounts for 53% of all transactions. After that there are usually smaller banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail FX market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size”.^[8] Central banks also participate in the foreign exchange market to align currencies to their economic needs.