Basket trading strategy in Forex

What is the best forex trading strategy? There is one important factor to be successful in the Forex market: you need a strategy that has a higher probability of winning, ensuring that profits are greater than the losses. Using an unique strategy of basket trade your savings can multiply much faster. If you want to succeed in Forex, you should invest in your knowledge first. Forex strategy called basket trade uses a method based on the grid, carry and hedge trading. Long term goal of this strategy is a profit of about 10 – 15% per year and almost 100% protection of capital. If you already know how trade basket works, you can try it in practice and take more significant risk. The strategy can easily be customized to your needs and risk willingness. I think 15-25% per year is very possible, and the risk is still small. It’s really a very good rate of return with a minimum of your time invested and a reasonable profit to risk ratio.

What is a Basket trade strategy in Forex? Only a very few investors are extremely successful, which is often redeemed by very hard work and many stresses. As with all investments – I advise you not to allocate all your savings on basket trade forex strategy. Diversification is the crucial concept in economics, which also applies to every investor’s personal finances. Treat diversification as a great method of saving, which should be complementary to all your other investments, like real estate, stocks or bonds.

Which online platform is best for trading currencies in basket trade method?

In order to apply basket trade strategy on many platforms, you should be extremely rich. For example, the standard is 1 lot, and 0,1 lot for less wealthy clients. This means that the item must have a minimum size of 100 thousand respectively of the unit (1 lot) or 10 thousand (0.1 lot). If you would like to open the smallest position for pair of currencies like USD / JPY, the size of the items would be $10.000 for 0.1 lot. The basket-trade value of one item must be 0.5% of total capital. So to use this strategy on standard Forex platforms you ought to have a capital of 10,000 $ / 0.5% = 2 000 000.00, which is 2,000,000 dollars. With smaller amount of money the leverage would be too big and you could lose the capital.

The simplest example of financial leverage is a home loan, for instance, buying an apartment worth $ 300,000, you pay over 30,000 dollars as a deposit. It’s the use of leverage with the value of 1:10, which means borrowed capital 10 times greater than your deposit. If the price of real estate will rise by 10%, you earn $30000 (100% of your money invested). When price of real estate falls, then you’ll lose 30000 dollars (all of your capital invested). Forex market operates in the same way. With a small deposit, you can open up to 100 times higher positions. In this case, however, if you lose the deposit thanks to rapidly falling prices, the position is closed automatically. In case of real estate, we can wait out the bad times for the market, because the bank will not sell the property unless you keep paying off fixed monthly rate. Therefore, incompetent use of leverage at Forex is very dangerous, if methods of management and capital position are not used. The only Forex platform that allows you to open positions with a value of as little as $1 is OANDA . For novice investors OANDA created FxGame, which is a demo account managed under the same conditions as FXTrade account, but without liability for any resulting losses.

How Basket Trading Forex Strategy works?

Basket trading combines 3 strategies: grid, carry and hedge trading, and thus increases the probability of winning and minimizing risk. Hedge trading is a “speculative investment strategy aimed at achieving a high rate of return.” Can be used for hedging, for instance, you have shares of the company, and the market starts to decrease. You do not want or can’t get rid of the stock, so you open a short position and sell stock index. If the shares of your chosen company’s decline any further, you lose money on the shares, but earn at declining index. The second method is more speculative. You buy and sell shares of a stock index. Assuming that the shares will decline at a slower rate than the index, so you will earn on the difference, and the risk will be much lower than buying a single financial instrument. So you earn on the difference, if you believe that the shares of the company will rise or fall faster than the market.

Carry trading means buying the currency at higher interest rate for a currency with a lower interest rate. Buying dollar USD for Japanese yen JPY is a typical example here. Let’s assume that investor borrows 1000 yen from a Japanese bank. Since the base interest rate in Japan is 0%, the interest rate of this loan is only 1%. Then exchange those yens to U.S. dollars and puts them on the bank deposit. We assume that the savings deposit interest rate in the U.S. is 4.5% per annum. Investor purely earns 3.5% (4.5% – 1%), if the exchange rate of USD / JPY will not change. In addition, leverage can make this kind of investment can be even more profitable. If an investor uses leverage of 10:1, then he can generate income of 35%. However, if the U.S. dollar falls against the Japanese yen, the investor risks losing money.