It is impossible to accurately calculate how many people trade forex on a daily basis but we do know that foreign exchange is the most highly liquid market in the world. With an average daily turnover of around US$4 trillion, consisting of around $1.49 trillion in spot transactions and about US$1.765 trillion in fx swaps- the rest being made up of futures, options and other swaps- FX is the most popular market to trade.
For some, foreign exchange markets are used to hedge, to speculate or to make short term bets. One thing’s for sure, traders all have different styles. Here are some of the most common:
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Quants are the high frequency traders who trade forex using the latest technology and complex algorithms. Quants tend to be technically savvy individuals who are able to harness computers to find minute inefficiencies in the market. To succeed, quants need super fast connections (such as fibre optic lines straight to the exchange) and expensive computers, which is why they often work for big institutions such as the major banks. Their trades are often so fast that they will not even be noticed by the rest of the market.
One up from the quants, scalpers also operate in the short term, but they may do so manually, or by using a computer program. Scalpers look to profit from inefficiencies in the market and can hold trades for anything from a couple of seconds to a couple of hours. The idea behind scalping is that markets are forever fluctuating around. Scalpers use this fact to profit from the ‘noise’ so that when a market spikes up or down, they will quickly enter and hope to pull one or two pips from a quick reversal.
Day traders (technical traders)
Day traders enter and close their trades on a daily basis, rarely holding any positions overnight. Typically they trade off charts using technical indicators such as pivot points or moving average lines to justify their trades. They may also factor in fundamental factors and news releases – perhaps buying or selling a currency the moment an expected economic figure is released. Some day traders may also use strategies to hedge their trades as they go.
Swing traders typically hold positions for a couple of days but not normally weeks. They are therefore less active than day traders but they do trade frequently enough to have to stay tuned to the market at all times. They will use technical indicators to identify profitable moves as well as fundamental data and they will look out for the possibility of reactions to upcoming news releases and events.
Position traders take much longer term positions and will hold positions for weeks, months or years. They are therefore just slightly down from buy and hold investors in terms of timeframes. Position traders will study big macro economic trends in order to find the long term moves that can often define a market for years. They are also likely to enter big shorts and use hedging strategies to build a successful and stable portfolio.Get the 5 most predictable currency pairs