The post Is There a Buy-and-Hold Strategy in Forex? by Jay and Julie Hawk appeared first on Benzinga. Visit Benzinga to get more great content like this.
Using a buy-and-hold strategy is certainly not the most commonly used way to trade forex since most forex traders focus on short-term strategies like scalping, day trading and swing trading. Long-term forex trading strategies do exist, however.
For example, forex trend traders, carry traders and international investors who do not hedge their currency exposure all establish long-term positions involving forex market risk. Even though the term is more commonly used among stock market investors, these forex strategies could be thought of as buy-and-hold strategies.
Note that these forex trading strategies might not be a good fit for the typical long-term investor because currency pairs can rise and fall over the long term. Still, they might suit a patient and savvy forex trader willing to establish and hold a position based on a longer-term market view established by careful market analysis. If you’re interested in learning more about forex buy-and-hold strategies, then read on.
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What is a Buy-and-Hold Strategy?
Among stock market investors, “buy and hold” typically refers to a long-term investment strategy where you purchase securities and keep them in your portfolio for an extended time frame. Because of the general propensity of stock markets to trend higher, many stock investors consider this a viable strategy.
If you’re a forex trader considering entering into a buy-and-hold position, you will generally want to take into account key economic factors for each currency in your chosen pair. For example, these factors might include central bank monetary policies, sentiment surveys and job market trends.
Keep in mind that you might have to wait for months or even years for your buy-and-hold forex trade to mature and become sufficiently profitable to meet the goals you set when establishing it.
Buy-and-Hold Strategy in Forex Trading
A forex trader may want to use a buy-and-hold strategy if they perceive a long-term trend in a currency pair is in the process of starting and should continue in the future based on the fundamental economic trends in one country versus another.
As part of their plan for establishing a buy-and-hold position in a currency pair, they may want to set clear goals for taking profits and cutting losses in case their view turns out to be wrong. Many long-term forex traders also use trailing stops to protect their profits and prevent a winning trade from turning into a losing one.
A trade based on a forex buy-and-hold strategy can offer substantial long-term profit potential if an extended favorable move occurs in the chosen currency pair. The trade might even offer additional profit if it involved positive carry.
That all might sound great, but keep in mind that currency buy-and-hold strategies generally require patience and deep-enough pockets to weather a significant adverse move. You will also need to trust your online forex broker for an extended period while the trade comes to fruition. Furthermore, some potential buy-and-hold trades may involve negative carry that can eat into any profits derived from a favorable move in the currency pair.
Example of Buy and Hold in the Forex Market
One example of a long-term trading strategy used by some forex traders is position or trend trading where a trader takes a position in a currency pair typically based on a favorable underlying trend and market view. Such a trader needs patience and deep pockets to withstand adverse market moves.
An example of a successful forex position trade in recent years could have involved buying U.S. dollars versus the Japanese yen in early 2022 when it was trading around 110. The position trader could then have sold the pair late in the summer of the same year at close to 145.
The trader would thus have locked in around 35 big figures of profit or around $24,000 on a $100,000 standard lot position size. The trader may also have enjoyed some extra gains from positive rollovers since they were long U.S. dollars, and U.S. Interbank deposit rates were generally higher than Japanese deposit rates during that time frame.
Another type of currency buy-and-hold strategy that might suit international investors is to purchase foreign assets, such as stocks, bonds or real estate. Note that this strategy involves taking forex market risk and can result in losses if the foreign currency corresponding to the purchased asset declines in value versus your domestic currency.
Carry Trade
Another type of buy-and-hold strategy used by some forex traders exploits the interest rate differential between two currencies. Commonly known as carry trading, this strategy typically involves buying the higher interest rate currency against the lower interest rate currency in a pair and then carrying that trade for an extended period of time.
The goal of carry trading is to capture the interest yield difference known as positive carry. Keep in mind that this strategy does involve taking forex market risk that can quickly wipe out any incremental carry gains.
A popular carry trade involves buying the Australian dollar and selling the Japanese yen when the AUD/JPY currency pair looks like it may be entering an extended upwards trend. Not only does this buy-and-hold trade have positive carry, but it can also show substantial returns from the bullish trend in the underlying currency pair.
Take the Next Step to Trade Forex with These Top Brokers
If you’re a retail trader looking to use a buy-and-hold forex strategy, then you will want to get all the necessary forex training you need and make sure you open a margin account with a reputable and well-regulated online forex broker. Benzinga has taken some of the guesswork out of this process by compiling the following comparison table of top forex brokers so you can get started quickly.
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get started
securely through FOREX.com’s
website
FOREX.com is a one-stop shop for forex traders. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.com is an excellent choice for brokers searching for a home base for their currency trading. New traders and seasoned veterans alike will love FOREX.com’s extensive education and research center that provides free, informative forex trading courses at multiple skill levels. While FOREX.com is impressive, remember that it isn’t a standard broker.
Best For
- MetaTrader 4 users
- Beginner forex traders
- Active forex traders
- Impressive, easy-to-navigate platform
- Wide range of education and research tools
- Access to over 80 currencies to buy and sell
- Leverage available up to 50:1
- Cannot buy and sell other securities (like stocks and bonds)
get started
securely through CedarFX’s
website
Billing itself as the world’s 1st eco-friendly broker, CedarFX makes it easy to trade and give back to the planet. You can choose a 0% Commission Account or an Eco Account — or open multiple accounts to meet all your needs.
CedarFX offers access to a wide range of tradable securities, including stocks, futures, major and exotic forex pairs, cryptocurrencies and more. Though CedarFX could introduce a few additional educational resources, the broker remains a unique option for traders invested in giving back.
Best For
- Forex investors
- Investors interested in 0% commission or eco conscious trading
- Investors looking for 24/7 customer service
- Allows users to offset their carbon footprint
- 0% commission investing
- Offers demo account access
- 24/7 customer service available through live chat
- Eco Account Option (10 trees planted for each lot traded)
- Fast deposits/withdrawls with Bitcoin
- Limited number of educational resources for new investors
get started
securely through IG Markets’s
website
IG is a comprehensive forex broker that offers full access to the currency market and support for over 80 currency pairs. The broker only offers forex trading to its U.S.-based customers, the brokerage does it spectacularly well. Novice traders will love IG’s intuitive mobile and desktop platforms, while advanced traders will revel in the platform’s selection of indicators and charting tools. Though IG could work on its customer service and fees, the broker is an asset to new forex traders and those who prefer a more streamlined interface.
Best For
- New forex traders who are still learning the ropes
- Traders who prefer a simple, clean interface
- Forex traders who trade primarily on a tablet
- Easy-to-navigate platform is easy for beginners to master
- Mobile and tablet platforms offer full functionality of the desktop version
- Margin rates are easy to understand and affordable
- Access to over 80 currency pairs
- U.S. traders can currently only trade forex
- Customer service options are lacking
- No 2-factor authentication on mobile
Get started
securely through AvaTrade’s
website
A fully regulated broker with a presence in Europe, South Africa, the Middle East, British Virgin Islands, Australia and Japan, Avatrade deals with mainly forex and CFDs on stocks, commodities, indexes, forex, cryptocurrencies, etc. This brokerage is headquartered in Dublin, Ireland and began offering its services in 2006. It offers multiple trading platforms and earns mainly through spreads.
Best For
- Beginners
- Advanced traders
- Traders looking for a well-diversified portfolio
- Controlled by regulatory agencies of multiple countries
- Choice offered in terms of trading platforms
- Support available in 14 languages and trading platforms in 20 languages
- Practice/demo account available for trying out
- Breadth of trading assets
- Does not accept customers from the U.S. as it isn’t regulated in the U.S.
- Transferring funds to the account may take up to five days; withdrawals could take up to 10 days
Get started
securely through Pepperstone’s
website
Pepperstone is an Australian broker focused on providing international forex, CFD and cryptocurrency trading. Though U.S. traders currently cannot open an account with Pepperstone, the broker remains an affordable and comprehensive option for international traders.
Pepperstone offers traders access to over 61 forex markets, over 60 CFDs for index funds and stocks and 5 cryptocurrencies. Leverage options with Pepperstone are extensive; you may qualify for up to 500:1 leverage when trading currencies and up to 5:1 leverage when trading cryptocurrencies, for example.
There are a few areas where Pepperstone can afford to improve. We’d love to see Pepperstone add its own trading platform in the future instead of relying entirely on 3rd-party platforms. We’d also love to see direct stock and fund purchase options in the future. Despite these flaws, Pepperstone remains a very strong choice for international traders.
Best For
- International traders interested in trading CFDs from foreign markets and currencies
- Traders who are already familiar with the MetaTrader or cTrader platforms
- Traders who are looking for leverage when trading cryptocurrencies
- Access to over 61 forex pairs and over 60 stock CFDs
- Leverage available for both forex and cryptocurrency trading
- Wide range of educational tools and courses that both beginners and experts can use
- 24/7 customer service
- Not currently available to U.S. traders
- No option to purchase stocks, bonds or mutual funds directly; only CFDs are available
Get started
securely through HYCM’s
website
HYCM is 1 of the world’s leading forex brokers, offering investors access to over 69 unique currency pairs. However, forex isn’t the only thing the broker offers — HYCM also offers high rates of leverage, stock and ETF trading, commodity investing and much more. Getting started with HYCM is quick and easy, and most investors can open an account in as little as 10 minutes.
HYCM offers a varying fee structure, which allows investors to choose the spread option that’s best for them. A wide range of educational and investing tools are available, which can be equally beneficial to both experienced and novice traders. Though HYCM isn’t currently available in the United States, it can be a great choice for residents of the other 140 countries where it offers service.
Best For
- Investors who want a customizable fee schedule
- Traders comfortable using the MetaTrader platform
- Islamic traders who need swap-free accounts that don’t build interest
- Wide range of currency pairs available
- Excellent selection of educational tools
- $0 deposit and withdrawal fees
- Not currently available to traders based in the U.S.
get started
securely through SimpleFX’s
website
SimpleFX is a cutting-edge online trading app, allowing you to invest fiat money or cryptocurrency in forex, crypto, indices, precious metals and commodities. With the WebTrader, you can learn to invest online and unlock advanced features designed for your success.
Best For
- Traders who need lots of options
- Customers who wish to invest with leverage
- Multicurrency traders
- Cryptocurrency owners who would like to invest with them
- Traders who prefer to skip the KYC and sign up just with an email address
- Experienced traders who would like to use MT4
- Simple to manage
- 60 currency pairs
- Spreads as low as 0.1
- Trading never closes
- Stock trading
- No minimum deposit
- No KYC for cryptocurrency accounts
- On the market since 2014
- Almost too many options for new investors
- Not yet available to U.S. users
get started
securely through eToro’s
website
Though Australian and British traders might know eToro for its easy stock and mobile trading, the broker is now expanding into the United States with cryptocurrency trading. U.S. traders can begin buying and selling both major cryptocurrencies (like Bitcoin and Ethereum) as well as smaller names (like Tron Coin and Stellar Lumens).
eToro offers traders the opportunity to invest their assets into premade portfolios or cryptocurrencies, similar to services offered by robo-advisors through traditional brokers. Though eToro isn’t a one-stop-shop for everything an investor needs, its easy-to-use platform and low spreads is a great way to enter the cryptocurrency market.
Best For
- International Forex/CFD Traders
- New cryptocurrency traders looking for an easy-to-use platform
- Traders who want to buy and sell cryptocurrencies on-the-go
- Simple platform that is easy to master
- CopyTrader feature that allows new traders to copy the same strategies used by professionals
- Virtual dummy account that gives you $100,000 to practice trades
- U.S. traders currently limited to cryptocurrencies
- Only 15 major coins available to trade
Frequently Asked Questions
Which strategy works best in forex?
The best strategy to use as a forex trader will largely depend on your personality and the amount of time you have to spend trading. Many traders have success using scalping, day trading, swing trading and trend trading strategies.
Answer Link
How long should you hold trades in forex?
The length of time you hold a forex trade will depend on the strategy you use. Scalpers might only hold trades for a few minutes, while trend traders might hold a position for months.
Answer Link
What is the easiest strategy in forex?
All self-directed forex trading strategies take time to develop and master, and the strategy you find easiest to use can depend on your personality. Most beginners find copy trading easiest to use since you just duplicate in your own account any trades made by the experienced forex trader you decide to follow.
Answer Link
The post Is There a Buy-and-Hold Strategy in Forex? by Jay and Julie Hawk appeared first on Benzinga. Visit Benzinga to get more great content like this.
