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In the world of forex trading, there are different types of traders and different types of trades. Every trader has a particular method or style of trading that suits his or her goals. Some incorporate two or more methods to employ the benefits of one that may not be present in another. Understanding each forex strategy is important for discovering which method works best for the individual trader.
Forex proprietary trading is a method of trading with one’s own capital. Most individuals in the forex market are proprietary traders because they trade using their own money. The risk is entirely on the shoulders of the trader.
Some experienced traders may work with forex managed accounts. Managed accounts offer the trader a much greater potential for profit and less risk because the money in those accounts are from other investors. Also called OPM (Other People’s Money) trading, forex managed accounts are generally the realm of the highly experienced trader. People will not trust their forex investments to just anyone. Most traders in this category have developed his or her education to the point of unconscious understanding of the market and have a proven record of success.
Entities like banks and financial institutions trade OPM, although there are exceptions. Financial institutions are in the business of investing the capitol of other people. Generally, these entities have a responsibility and commitment to trade specifically for their customers and clients. Sometimes, a financial institution will trade using its own capital in an attempt to make up for a loss on another account.
Banks and their ilk are fundamentalist traders. A fundamentalist trader is one who focuses on trading only in response to fundamental announcements. Fundamental announcements are essentially forex news briefs that provide traders some insight on the direction of the market at the time of the announcement. A fundamental announcement can – and often does – have a significant impact on how the market moves and works. Fundamentalist traders depend on this information as the trading day evolves, generally waiting for the report to come out and then acting on the information it provides. Some individual traders are also fundamentalist traders; however more commonly, banks and other financial institutions are in this category.
The forex trading strategy that works for one person may not necessarily work for another. Study and dabble in each strategy to determine the path that works best for you.