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Forex Trading Strategies
There are various strategies in the forex market. They are called bullish, bearish and neutral and the employers employ different strategies according to their judgment of the market behavior and their speculations regarding its future.
When the forex trader expects that the underlying stock price is going to move upwards, he employs bullish options strategies. The most common bullish strategy used by novice option traders is the simply called buying strategy. When the market is bullish, it means that a lot of buying is going on.
But, usually forex price doesn’t change by great amounts. The fluctuations are minor. So, at times the forex trader may even employ moderately bullish options. Though profits are somewhat decreased in bullish strategies, so are the risks. ‘Bull put spread’ and ‘bull call spread’ are examples of somewhat bullish strategies.
Slightly bullish strategies enable the trader to earn money till the underlying forex price does not fall. These strategies frequently offer a tiny downside safeguard too. Writing of the ‘out of the money covered calls’ is an illustration of this strategy.
When the options trader expects the forex price to move down, bearish options strategies are employed. The most bearish option employed by novice traders is to use ‘put buying’ strategy. But, as market seldom suffers a steep fall, bear spread can be used to reduce risk. ‘Bear call spread’ and ‘bear put spread’ are two such strategies. Slightly bearish trading strategies allow the trader to make money unless forex price goes up.
Neutral strategies are in use when the options trader does not know whether the stock price will rise or fall. The strategy then depends on the expected unpredictability of the stock price.
Thus which strategy a dealer will employ depends solely on his judgments and the nature of the market. All dealers keep a close watch on the happenings in the forex market and the countries in which they are interested and opt for a strategy accordingly.
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