As we know, strategies used by forex traders can be divided in two main categories: those based on fundamental analysis and those based on techinical analysis. Among those of the first types there are four strategies which are very often exploited by traders.
Carry Trade – It is a strategy which differs a lot from other forex trading strategies, as it enables traders to make a profit even when the market is stable as it does not rely on market prices but rather on borrowing from a low interest rate currency and to fund purchasing a currency that provides a high return. In other words, a trader using this strategy aims to capture the existing spread between interest rates, which can be relevant, depending on the amount of leverage used.
Buy the news, sell the fact – any Forex trading strategies allow traders to analyze the price action from different perspectives. These strategy suggests a trader to anticipate the market, “buying” the news in advance with respect to the facts. Contrary to what a ordinary trader may think, when an already priced-in fact occurs, a trader should “sell” it rather than “buy” it, taking a profit from this counterintuitive move.
Arbitrage – It is a speculative strategy, where a trader gains from price differences existing in forex markets. Forex arbitrage exploits price discrepacies in currency pairs. A trader seeks to buy and sell currency prices that are currently divergent but extremely likely, at least according to empirical evidence, to rapidly converge. The expectation is based on the bet that, as currency pairs approach their mean, the arbitrage becomes more profitable and can be succesfully closed, sometimes even in milliseconds, thanks to the modern trading platforms.
Fair Value – It is a strategy based on the comparison of two domestic economies (e.g. US vs Eurozone), in order to evaluate which one is in a better shape. Traders evaluate and weigh each economic sector, in order to understand which one has the strongest macroeconomic fundamentals (GDP, unemployment rate, trade balance, etc.). Once the comparison have been made, a trader can take his/her investment decisions, for example by chosing whether to go long or short on pairs involving currencies related to the chosen economies.