Beginner
Strategies and risk
2 minute read
Trading strategies
Your approach to the markets has a significant impact on how your trade. It dictates which strategies you use, how you manage risk and more.
In this course, we're going to cover how to pick a strategy for trading and risk that suits you. But before we get to that, you'll need to decide your trading style.
What's your trading style?
Every trader is unique and will have their own style. The chief factor in deciding yours is how much you want to trade, and how long you want to keep each position open.
Long-term traders, for example, tend to only take a few positions each quarter. They'll keep them open for months at a time, looking to earn 10% or more profit from each.
Day traders, meanwhile, are the opposite. They may take multiple positions each day, keeping them open for minutes or hours. Using leverage, they aim to profit from relatively minor market moves.
There are also short and medium-term traders, who fall somewhere in between. Or you might decide to employ a mix of a few different styles – it's all about finding an approach that suits you.
Day trading | Short-term trading | Medium-term trading | Long-term trading |
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Trades multiple positions during the day | Trades few positions through the week | Takes only a few positions throughout the month | Takes only a few positions throughout the quarter |
Typical trades last between minutes and hours | Typical trades last from 1 day to 1 week | Trades typically last between 2 weeks to a month | Trades typically last between 1 and 2 quarters |
Looks to profit from small market moves | Looks to profit from market moves of 1% to 5% | Looks to profit from market moves of 5% to 10% | Looks to profit from market moves of 10% or more |
Bases trades on technical levels and market news | Bases trades on technical levels and market news | Bases trades on both technical levels and fundamental analysis | Bases trades on both technical levels and fundamental analysis |
Types of trades
As well as determining your strategy, your trading style will dictate which types of trades you employ.
With traditional investing, you can only open one type of trade – buying an asset over the medium to long term, and holding it in the hope that it earns you a profit. With leveraged products like CFDs, there are different types to suit different styles.
Here, we're going to cover two main types. Standard CFDs are ideal for shorter-term opportunities, while forwards may be better for longer-term ones.
What are daily CFDs?Daily CFDs are trades that are intended to be kept open for short periods – from less than a day to a couple of weeks. They have the tighter spreads than forwards but will incur an overnight financing charge if held open after the markets close. Daily CFDs have no expiry. | What are forwards?Forwards are meant for longer positions, from a few weeks to several months. With forwards, all overnight financing charges are incorporated into the spread. So the spread is wider, but you don't pay any overnight financing. With FOREX.com, you can choose between forwards that expire in a given month (monthly forwards) or a future quarter (quarterly forwards). |
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Differences at a glance
CFDs
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Put your knowledge into practice
Ready to put what you’ve learned to the test? Sign up for a demo account to hone your strategies in a virtual environment with no risk to your capital.