Types of forex trading (For South African Fx Traders)

Introduction

The world of financial markets can be approached in many ways. While the end goal is to make money, the way to get there is different based on the personality of every trader. Some are focused on taking risks while expecting bigger rewards while others look to preserve their capital while building long-term and low-risk profits. 

Different Approaches to Financial Markets

There are six different types of traders:

1. Scalper

For traders who thrive on fast-pace, scalping is an ideal strategy. Scalpers focus on extremely short-term trades, sometimes holding positions for even seconds for the purpose of profiting from rapid price movements. They typically trade highly liquid assets to achieve smooth entry and exit at their preferred price points, while utilizing large or leveraged forex positions.

Success in scalping requires quick decision-making, sharp instincts, and the ability to multitask. However, such high-speed approaches come with trade offs. Market volatility or unclear price action can cause heavy losses that may erase days' worth of gains. 

Figure 1

Scalpers need to be quick in their decision-making. They are also instinctive and are able to multi-task which helps them spot patterns and strategy elements over a very short period of time. Forex Scalpers may endure some pain when the market is too volatile or unclear and could see large trading losses that would eliminate gains achieved over several days. Nonetheless, the reward to this style of trading means achieving big profits day after day.

2. Day Trader

Day traders operate similarly to scalpers but hold trades for longer periods throughout the day. Instead of making rapid-fire trades, they rely on short-term charts—such as the 5-minute or 15-minute timeframes—to make informed choices. At the end of the trading day, they close all their positions, avoiding overnight risks.

Like scalping, day trading demands fast decision-making. Traders have slightly more time to assess their setups before executing. While this style allows for some flexibility, day traders still need to actively monitor the markets and be prepared to react quickly when opportunities arise.

3. Swing trader

Swing trading is a medium-term strategy where traders hold positions for several days or even weeks, so they can capitalize on market swings. These traders rely much on technical analysis while also considering fundamental factors and major news events.

Unlike scalpers or day traders, swing traders don’t have to get addicted to their screens all day. They simply analyze market trends, set up their trades, and check in periodically to track progress. Since they trade on higher timeframes—such as the 1-hour or 4-hour charts—they look for high-probability setups and look for larger price movements. Occasionally, they refer to even bigger timeframes for trend direction or smaller ones for more precise entries.

Figure 2

4. Position trader

Position traders take the longest-term approach, holding trades for weeks, months, or even years. Instead of focusing on short-term price fluctuations, they give priority to long-term economic trends, central bank policies, and macroeconomic factors that influence financial markets.

Technical analysis plays a role in identifying entry and exit points, yet position traders rely more on fundamental analysis to shape their long-term strategies. Since their trades are based on broad market trends, they check the markets infrequently..

5. Algorithmic trader

Tech-savvy traders familiar with coding and programming can leverage their skills to develop automated trading systems. Algorithmic (algo) traders create predefined trading strategies that execute trades automatically based on market conditions. Some even engage in high-frequency trading (HFT), where trades are executed in milliseconds.

Algo traders rigorously backtest them on historical data to evaluate performance and before they run their trading systems. Once satisfied with the results, they run these algorithms on live accounts, often starting with small trade sizes. These programs typically operate on reliable servers to avoid disruptions.

Algo trading has become a dominant force in financial markets,. once the system is running, algo traders only need to periodically monitor it to ensure it functions as expected.

6. Event-driven trader

Some traders specialize in trading around major economic events or news releases. These event-driven traders analyze the economic calendar and enter the market as soon as key data—such as interest rate decisions or employment reports—is released. If positioned correctly, they can achieve substantial profits in a short period.

However, this approach carries its risks. During major news releases, market liquidity can be thin, leading to unpredictable price swings. Traders must be prepared for sudden movements and ensure they have a risk management plan in place. Those who successfully navigate event-driven trading can benefit from quick gains while minimizing screen time.

Figure 3

While the advantage in this type of trading is the possibility of quick gains and minimal time in front of the screen, the disadvantage is having to keep an eye on liquidity around news releases as most traders are on the sidelines. In other words, if you are looking to enter the market as soon as a release comes out, be ready for prices to vary wildly given the low participation during this short period of time.

Most Traded Currency Pairs in South Africa  

 The most traded pairs include major pairs like EUR/USD and USD/JPY and exotic pairs such as USD/ZAR, EUR/ZAR due to higher liquidity and higher trade volume. The USD/ZAR is highly influenced by US and South Africa’s relation and ecopolitical factors including inflation, interest rates, supply and demand of the exported and imported goods. Both countries trade vehicles, gold, iron and steel and machinery and their prices effect this forex pair strongly. 

The Impact of USD/ZAR Volatility on Types of Forex Trading in South Africa

USD/ZAR is highly volatile trading pair which provides profit opportunities for event-drive traders, scalpers and day traders. They can take advantage of sudden price movements of this pair, but it comes with higher risk as well. They need stop-loss orders and risk management plan to avoid significant losses. 

Which Trading style Is Right for You? 

Every trader has unique style of trading based on their risk tolerance and time dedicated to trading as well as their investment objectives. If you are someone who hold positions for shorter period, then scalping or day trading could be a better fit. However, if you are a trader who analyzes the positions until they reach a key resistant level or liker to hold long-term, then swing or position trading might suit you the best. Trading style may switch from short-term to long-term or vice versa as your needs evolve.  

You can use the tips provided in the article to develop a trading style in South Africa that aligns with your personality, risk appetite, time horizon and investing goals. The goal is to maximize potential and mitigate the risk regardless of any trading strategy you choose.