The forex market is filled with different types of traders. In this post, we will be examining the different types of forex traders. Traders can trade for banks, hedge funds or even individually leading to different objectives.
Based on the size of funds managed, there are two types of traders. They are retail traders and institutional traders.
Retail traders are generally small scale traders who manage accounts of few hundred dollars to a couple of millions. These traders are pure speculators, trading the forex market to make a profit. Although there are some retail traders with hefty accounts, the uniting underlying factor is speculation.
Institutional traders on the other hand are trader associated with institutions involved in the forex market. These consist of traders for banks and hedge funds. These traders manage accounts up to hundreds of millions of dollars. The reason for trading can be anything ranging from speculation, to hedging or even fulfilling client (large corporations) demands.
Moving forward, forex traders can also be classified based on average trade length. This method differentiates forex traders into scalpers, day traders, swing traders, and position traders.
Scalpers are forex traders who make use of trading strategies that allow them to trade very rapidly. They trade on lower timeframes and do not stay very long in trades. Spread is always a significant issue for scalpers due to high trade frequency.
Scalpers take small profits (or loss) from the market on each trade. It is the summation of all these small profits that result in a substantial amount. Timeframes used majorly by scalpers are M1, M5, and M15.
To learn more about timeframes click here.
Day traders are traders that close all their open positions within a day. Therefore, before the end of the day and swaps are charged, they close their trades. This means that day traders do not incur swaps.
Day traders generally trade using the M30, H1, and H4 charts. Day traders make use of strategies tailored to these timeframes. Also, day traders stay longer in trades than scalpers and trade less frequently.
Swing traders are traders that hold positions for up to 2 -5 days. These traders have a trading frequency less than that of day traders. Swing traders incur swaps on the positions they hold overnight.
Swing traders trade strategies that are tailored to the following timeframes: H4, D1, and W1. As a result, swing traders are traders that are patient.
These type of traders hold their positions the longest. This is because position traders can hold positions for several weeks even months at a stretch. Unlike scalpers who accumulate trading costs from high frequency trading, position traders do so from swaps.
Trading strategies of position traders are tailored to the W1, and MN charts. Position traders are by far the most patient of the types of forex traders.
In conclusion, different forex types of forex traders have different characteristics. An example of these characteristics is patience.
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