If you are a business owner based in the Midlands, you will no doubt always be looking to expand your revenue stream. This will not only give you the chance to make more money and grow your business, but will also help protect it if one source of income stops suddenly. With this in mind, many Midlands-based entrepreneurs are beginning to look at trading on the global currency market to diversify.
Of course, before risking any of your business’s money, it is essential to know what you are doing. One of the major things to get a grip of is the trading strategy your business will use. By settling on the one that suits you best, you will have far more chance of succeeding in the long term. Here are the most common ones to consider.
Scalping
One very common strategy that many UK businesses use is forex scalping. It involves the quick opening and then closing of trading positions in currency pairs. Although there is no set time limit, scalpers usually only open trades for a few minutes at a time. They aim to react to quick fluctuations in the currency pair’s price to take lots of small, fast profits over the day.
Scalping is popular with businesses as it lowers the risk of trading FX due to limited market exposure. It can also offer some seriously good profits when the small wins for a day or week are added up. The biggest drawback for this as a business strategy is the time it involves. Scalpers have to be sat in front of their computer screen and fully focused for hours each day to make any decent money.
Trend trading
There is an old saying in FX trading that goes ‘the trend is your friend’. For any businessperson new to trading, this is worth bearing in mind. It also forms the basis of the trend trading strategy, which is commonly used by Midlands-based businesses entering this market. In simple terms, this strategy involves looking at the relevant chart for the pair you want to invest in and seeing if the price is on an upward or downward trend.
There are chart indicators that can help with this, though many old-school traders still simply do it by eye! The advantages with this approach are that it is simple to grasp, easy to implement, and can bring great rewards. It also involves less time than scalping as you tend to set the trade and then leave it to pan out for a day or two. This is not a strategy for those who like lots of drama though and can also lead to bigger losses if the trend suddenly turns against you.
Swing trading
One other quite common approach that many businesses will take when investing in FX is swing trading. This is a good approach for those who want to make more money through investing but haven’t the time or inclination to open more than a few trades per month. For some business owners, this is very attractive. Swing trading simply sees you identify points on a currency pair’s chart where you think a high has been reached to open a short trade or vice versa. You would then open your trade and leave it to run for a few weeks or months to play out. Naturally, this is not the strategy for those who need quick cash.
Carry trading
Probably the last major strategy that many organisations use when trading FX in the UK is this one. Although it may sound hard to understand at first, it is actually fairly simple. It basically involves taking out a trade where you buy a high-interest currency that is matched up against a low-interest one. You make money from the difference in the two interest rates, which is collected for every day you keep the trade open.
Let’s say, for example, that you opened a buy trade in the USD/JPY pair. If the US interest rate was 5% and Japan’s was only 2%, then you would make 3% profit from the interest rate difference each day you had the trade open. The obvious benefit with carry trading is the extra money to be made from the interest rate differential in addition to the trade going in your favour. The major downside is that picking up some extra interest will not cover losses from losing trades, so you still need to know what you are doing.
Pick the right strategy to suit your needs
As the above shows, there are a few different FX trading strategies that you could select from. The key thing to note is that none are inherently better than the others. Being successful in FX trading is all about using the right strategy for you and one that you can implement well and with consistency.
