Forex Spread Betting Strategies
Trading forex through your spread betting broker can be an effective way to benefit from tax advantages while also accessing the same currency markets with their attractive volatility and resultant profit potential. When trading anything, be it forex, shares or pork bellies, it's essential that you have a strategy in place that takes account of both the instrument through which you're trading, and the market for the asset you are trading. Forex spread betting is no different, and there are a range of different forex spread betting strategies that can be implemented to improve your chances of profiting from the markets.
Short Term Strategies
Short term strategies are commonly implemented when trading forex, and indeed when trading forex through a spread betting platform. Because of the ability to make quick returns in a fast moving and volatile market, short-term strategies are often seen as a good way of minimising the risks of wayward trades while also allowing suitable earnings to accrue over the course of the trading day.
Short term strategies, like scalping and day trading are designed as a means of reducing the risks associated with an individual transaction. If a position is open for an hour or two, it arguably has less of a chance to go horribly wrong than if it were open for six months or a year. These strategies turn their focus to making small profits whenever possible, with a 'little and often' approach to building a profitable trading portfolio.
Of course, it would be too easy if short-term strategies were a risk free, downside-free way to make money trading the markets. The shorter term the strategy, the more work you're likely to have to input as a trader in terms of researching and monitoring positions.
You will also be required to foot a higher cost burden than long term traders, because of the sheer volume of trades you are placing. More trades equals more commission for the broker, and these costs can quickly mount up over time. At the same time, you're also limiting the extent of your upside by arbitrarily trading over a short period of time, which can cause frustration and lost earnings in equal measure.
Long Term Strategies
Long term strategies are also applied to the field of forex trading, although less so when trading forex markets directly because of the costs associated with financing positions. With spread betting, it is possible for positions to roll over night without attracting financing costs, making it more suitable for longer term trading in the forex markets.
Long term strategies, like swing trading are focused on building larger profits through fewer transactions, and build in sufficient time for trades to move heavily in a favourable direction. It is also a cheaper strategy in terms of trading costs, and one that requires less research work on an ongoing basis.
Unfortunately, it is more difficult to spot an opportunity for significant long-term earnings in the currency markets than it is to identify earnings potential over the course of one day, and the potential for significant losses over a number of months is huge.
Forex trading strategies, while varied and numerous, each have different benefits to contribute, and depending on your trading style you might prefer to opt for either type of strategy. Whichever type of strategy you find yourself pursuing, make sure you have a full understanding of the individual risks it poses as a more important element than profit potential, to allow you to contain negative trading positions and build up a profitable investment pot.