Most financial markets offer a variety of ways to engage in trading. Usually, those engaged in forex investments fall under three groups. These groups can are known as day traders, position traders, and swing traders.
When it comes forex investment strategies, you might have heard of the buy-and-hold strategy or a position’s trade. Although these names are great, the strategy is basically a long-term trade.
Having said that, in the forex market you can hold a position for a few minutes or a few years.
Trading forex positions as an investment all come down to your trading goals. Choosing your position will be based on the comparison of fundamental economic trends in one country versus another.
If you buy and hold a position in the forex market, you would buy the currency and hold it for a few years. For example, if you bought euros with U.S. dollars 15 years ago and held the position for many years, you might stand to benefit from your position right now.
Each time an American wants to invest in a company (buy shares) in the European Union (EU), they will have to exchange dollars for euros. So when this happens, not only is the investment speculating on the growth of a foreign company, but also on the appreciation of the euro against the dollar.
So in this situation, the American investor would hope to both gain from the appreciation of shares as well as the currency. At the same time, you can stand to lose significantly if the European company and/or currency falls.
There is no strategy in the forex market that will be 100% certain. So it’s all relative to your investment goals and the variables that influence any particular currency.
Generally, if traders buy and hold on to a currency, they would probably sell a currency that pays a lower interest rate. That means you will buy a currency of higher value with one that’s cheaper.
For example, if you want to buy euros, you might sell the Indian rupee to get it. This is known as a carry trade as the trader will earn the interest differential.
At the same time, the investor won’t be able to know how the currencies will perform against each other in the long-term. As a result, most forex investors prefer short-term trades so they can time it according to the direction of the market swing.