Most traders are not familiar with the different ways to trade in markets. It is mostly because of the region they fall in, in terms of trading groups. The common example to best describe is the Buy-and-Hold Strategy (B&H) which is quite popular in the stock market but very fewer traders know that it is possible to use B&H strategy in the forex market for currency trading. However, there are certain limitations of using B&H in the forex market as compared to the equity market.
So, let’s find out.
In theory, there are three groups of the trader, in terms of time frame they prefer to trade.
- Day traders
- Swing traders
- Position traders
Most investors/traders misunderstood that buy-and-hold strategy or position’s trade as an investment but truth is, it is a long-term trade.
It is very common in stock traders and very rare in forex traders who think of it as a passive investment. Instead of relying on technical charts and mathematical measures like active investors, forex traders do fundamental analysis. Like passive traders who use B&H strategy, forex traders are more focused on checking the inflation and unemployment rate of the country they invested in.
Using Buy-and-hold strategy in forex is more like a carry trade where the trader will earn the interest differential between two currencies. For example, an Indian trader buys shares in a company in America, American will pay for those shares in dollars, thus it will be required to convert dollars into rupees. Here’s India is speculating on the growth of the American company and also on the appreciation of the dollar against the rupee.
So, if someone wants to implement the B&H strategy, the person would possibly sell a currency that pays a low-interest rate and buys a currency that pays a high-interest rate.
It is more like a “Set-and-forget” trading style and considered profitable for long-term trades. Nevertheless, it is not easy as it looks especially for traders who are in intraday trading and have less patience to wait for the outcome.
Final Thoughts: –
If you are planning to use B&H strategy, just don’t forget to give most priority to the fundamental analysis and the choice of currency pair you are trading in. Most of all, if you required exiting the B&H position then you can exit both on target achieved or intolerable loss.
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Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.