In the forex industry crammed with many opinions regarding how one should take forex investments, one of the most asked questions is, between Long-term and Short-term Forex Investments, which is better?
We at Goatfunded have decided to take up the responsibility to educate you guys as to which is better for you in your trading career.
Let's start with this truth.
The fact is, in forex trading, both Long-term and Short-term forex investments have their Pros and Cons.
Therefore, there is no definitive answer as to which one of them is better.
The surest thing however is, that your trading style, strategy and expectations largely contribute to which of the two categories you will fall into.
But before we continue, let's look more deeply into both types of forex investments.
Long-term Forex Investment
Long-term forex investment can be defined as an investment that is made on a foreign exchange market with the aim of holding investment positions over an extended period of time. This could range from a few weeks to months and sometimes, years.
Characteristics Of Long-term Forex Investments
- Investment positions are usually held over a long period of time ranging from a few weeks to some years.
- The analysis is mainly on economic data and a little of some technicals.
- Lower susceptibility to unprecedented market volatility.
- Substantial risk is taken in expectation of high returns.
Pros Of Long-term Forex Investments
- Cost Effectiveness: The kinds of expenses incurred in the forex investment include brokerage gains, capital taxes and bid-ask spread. These kinds of expenses are minimal when investing in the forex market for the long term.
- Less Stressful: Due to the fact that Long-term investors are unbothered by the little daily fluctuations, they are more relaxed and need not monitor their charts constantly. This affords them the freedom to engage in other productive activities without being stressed by trading.
- Lower susceptibility to unforeseen market fluctuations
Cons Of Long-term Forex Investments
- Fundamental Knowledge: Due to the fact that many of the retail forex traders out there are not fundamentally vast and certified in this area of expertise, long-term investment is not one for them because it requires knowledge of how to analyse based on fundamentals.
- Long-term Forex Investments requires a lot of patience that many traders might not possess. Hence, you need to be sure to have a lot of patience before you can delve into Long-term forex investment so as to avoid being bothered by temporary changes in trends.
- It takes a long time to lock in your profits.
Having known all these, it is only right that we let you know the kind of traders that this type of investment would be best for.
From experience, it has been found that Swing traders are the most inclined to this type of investment. This is because their style of trading affords them the opportunity to hold trades for an extended period.
Short-term Forex Investment
Short-term forex investments can be defined as an investment in the forex market, aimed at taking advantage of the temporary price fluctuations in the market and is intended to be held from the range of some minutes, hours and days.
Characteristics Of Short-term Forex Investment
- Analysis and entries are based mainly on technicals and little fundamentals.
- Investment positions are held ranging from a few minutes to some days.
- Higher susceptibility to little market fluctuations.
- Lower risks are being taken in expectation of comparatively lower returns.
Pros of Short-term Forex Investments
- More Trading Opportunities: Short-term forex investors have more trading opportunities since their analysis and entries are majorly based on technicals. For instance, a trader who takes entries on a one-minute timeframe would see more trading opportunities than one who takes entries on a 1-hour or 4-hour timeframe.
- Minimised risks: Lesser risks are used in short-term forex investments which gives room for more investment positions to be taken while safeguarding the capital.
- Profits can be made within a very short period.
Cons Of Short-term Investments
- High Transaction Costs: As a result of the multiple trades being taken, commissions and swap fees could be very high which could take away a huge chunk of the trading profit gathered.
- Mentally Exhausting: Due to the constant need to monitor your trades daily, having other important businesses outside trading with other activities could be exhausting mentally.
- Multiple losses made within a short period could harm the account management. Hence, necessary precautions need to be taken.
If one takes a closer look at this Short-term Forex Investment, one could easily say that it suits best Day traders, Intra-day traders and Scalpers.
So which type of forex trading investment is best for you?
The answer to this now is simple. It depends on your trading style.
So, what type of trader are you?
Conclusion
Ultimately, the choice between long-term and short-term forex investments hinges on your trading personality and objectives.
It's essential to align your investment approach with your risk tolerance, time commitment, and financial goals.
Remember that successful forex trading requires continuous learning, discipline, and adaptability to changing market conditions.
