Forex market is the most active financial market in the world. Nearly 3,2 trillion dollars are traded daily in this market, flowing through accounts of investment banks, hedge funds, Central Banks, international corporations and traders.
By estimates about 70% of all business volumes in the exchange market has speculative character. It means that the biggest part of Forex transaction is performed only to get profit. And only 30% of transactions is made for final use.
For example, buying currency for a trip abroad, for buying a foreign real estate, etc., for hedging of risks. And most of the participants of the Forex market are the traders trying to make money on market fluctuations.
Tasks of hedging and risk management pursue a bit different aims than the strategy intended for speculation.
Almost all traders trading within one day uses the margin account of the broker. The margin account allows using borrowed funds, trading thus a large sum, having as marginal small sums in the account. The most widespread is the leverage 100 to 1. It means that for each dollar which is available for you on the account you can use up to 100 dollars of borrowed funds of the broker. Thus, only 1000 dollars on the account allow you to trade on Forex as if you had 100 000 dollars. Some brokers provide 200:1 leverage and higher.
Leverage will allow you to get a considerable profit even on very small, minor change of the price. On Forex not so often are the days when on big and acute fluctuations it is possible making huge money. The most part of time rates fluctuate very slightly, the price changes at best on some points. In such situation, most of the traders couldn't earn a decent amount without margin trading. Therefore, use of leverage is not obligatory, but highly recommended.
It is even not a strategy, but a way to participate in the financial market, and it is very convenient for busy (and even lazy) people. You trust the broker or the manager to trade in the Forex market on its own behalf, and you pay a certain percent of profit. It makes sense when you have no opportunity or desire to sit for days at the computer and you don't want to be learn to trade. The managed accounts are under the authority of highly skilled currency traders so sometimes it makes bigger sense to trust them the money, than to trade by yourself.
Most of the professional traders use the strategy based on methods of the technical analysis. A similar approach is considered the most effective and justified since it is based on the mathematical formulas describing the processes happening in the Forex exchange. Technical analysis strategies are always based on price chart analysis. Thus, the graphic models, any indicators and oscillators predicting the movements of the price estimating the volatility of the market, existence and the direction of a trend in the market are used.
The trading strategy based on methods of the fundamental analysis assumes the serious analysis of global economic and political events in the world. At decision-making traders have to consider the statements of government agencies, central banks of the countries, holders of the main currencies, pay attention to working reports and data of consumer expenses in the developed countries, growth rates of GDP in developing countries, both others macro - and macroeconomic indicators.
For example, the rate of Canadian dollar substantially depends on commodity prices. Therefore, when demand for raw materials grows in the world, such as oil, gas, Canadian dollar also grows.
To apply the fundamental analysis, it is better to take one-two currency pairs and to study all factors influencing its movement.
Developing the Forex trading strategy, try to make it simpler. It is to your advantage to make the strategy that won't steal your precious time and attention. It is very useful firstly to test your strategy on educational account.