Foreign exchange market

The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading of currencies. This includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of volume of trading, it is by far the largest market in the world. The main participants in this market are the larger international banks. Financial centres around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market does not determine the relative values of different currencies, but sets the current market price of the value of one currency as demanded against another.

The foreign exchange market works through financial institutions, and it operates on several levels. Behind the scenes banks turn to a smaller number of financial firms known as “dealers,” who are actively involved in large quantities of foreign exchange trading. Most foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the “interbank market”, although a few insurance companies and other kinds of financial firms are involved. Trades between foreign exchange dealers can be very large, involving hundreds of millions of dollars. Because of the sovereignty issue when involving two currencies, forex has little (if any) supervisory entity regulating its actions.

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Day trading

Day trading is speculation in securities, specifically buying and selling financial instruments within the same trading day. Strictly, day trading is trading only within a day, such that all positions are closed before the market closes for the trading day. Many traders may not be so strict or may have day trading as one component of an overall strategy. Traders who participate in day trading are called day traders. Traders who trade in this capacity with the motive of profit are therefore speculators.

Some of the more commonly day-traded financial instruments are stocks, options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures.

Day trading was once an activity that was exclusive to financial firms and professional speculators. Many day traders are bank or investment firm employees working as specialists in equity investment and fund management. However, with the advent of electronic trading and margin trading, day trading has become more common.

Swing trading

Swing trading is a speculative activity in financial markets where a tradable asset is held for between one to several days in an effort to profit from price changes or 'swings'. A swing trading position is typically held longer than a day trading position, but shorter than buy and hold investment strategies that can be held for months or years. Profits can be sought by either buying an asset or short selling.

Swing trading methods

Using a set of mathematically based objective rules for buying and selling is a common method for swing traders to eliminate the subjectivity, emotional aspects, and labor-intensive analysis of swing trading. The trading rules can be used to create a trading algorithm or "trading system" using technical analysis or fundamental analysis to give buy and sell signals.

Simpler rule-based trading approaches include Alexander Elder's strategy, which measures the behavior of an instrument's price trend using three different moving averages of closing prices. The instrument is only traded Long when the three averages are aligned in an upward direction, and only traded Short when the three averages are moving downward. Trading algorithms/systems may lose their profit potential when they obtain enough of a mass following to curtail their effectiveness: "Now it's an arms race. Everyone is building more sophisticated algorithms, and the more competition exists, the smaller the profits," observes Andrew Lo, the Director of the Laboratory For Financial Engineering, for the Massachusetts Institute of Technology.