What Is Forex Swing Trading?

Alex Newth

Forex swing trading is a trading strategy that is similar to Forex day trading. Swing trading, a strategy that can be used in any type of trading, focuses on short-term investments, like day trading, but extends the life of the investment slightly more than day trading does. This allows the trader to make more money by waiting for a better time to trade for profit. The investments are kept longer, so the swing trader may be subject to bank rollover fees, but these generally do not reduce the profit potential by much.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

With Forex day trading, the strategy is simple. The trader invests money into a foreign market at the beginning of the day. A few seconds or few hours later, the day trader will trade the currency to make a profit, if the currency value rises. In this strategy, the day trader will resolve all investments by the end of the day and no money will be invested overnight.

Forex swing trading is similar, because the investments are made for short-term purposes. The difference is that the swing trader will usually keep the investment alive overnight and will typically keep the money invested for a few days. Unlike long-term investment strategies, Forex swing trading only focuses on price trends, rather than whether the company will grow in the next few years.

A Forex swing trading strategy offers some advantages over a day trading strategy. Instead of making a large amount of hectic trades, the swing trader will make fewer overall trades, which allows the investor to focus more on the potential profit. There is a larger window of time, so the swing trader can wait for a specific moment when the currency value rises, instead of hoping that the value will rise by the end of the day.

By keeping the investment alive longer, the swing trader may be subject to rollover fees. These fees occur when the trader sells a high-interest currency against a low-interest one. While these fees do bite into the profit, they usually do not take away much.

Compared to a day trader, Forex swing trading incurs much lower fees. Whenever a transaction is made, a fee is charged. For the day trader, these fees will be substantial because of the substantial number of transactions. Swing traders also suffer from these fees, but to a much lesser degree because they have fewer overall transactions.

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