What Are The Core Types Of Trading In The Financial Markets?

What Are The Core Types Of Trading In The Financial Markets?

Trading in the financial markets can be a highly rewarding experience. Whether you wish to trade stocks, crypto, FX, commodities, etc. - the financial markets have something for everyone. 

However, with this variety comes complexity and the same financial markets are rife with trading strategies with a lot of moving parts. 

For beginners, this may be confusing and while the basic principles of buy low sell high are easy enough to grasp, the reality of the markets can be much more hectic. 

For this reason, traders over the years have come up with a number of strategies with clear steps and potential risks and rewards for beginners and experienced traders alike to follow and modify to fit their objectives. 

Some trading strategies can be rather simple and use only a handful of indicators, while others are super complex and generally not advisable for beginners. 

If you are a beginner to the financial markets and would like to know more about the core types of trading, this Investfox guide can help. 

How Are Trading Types Different From Each Other?

The different approaches to trading can yield vastly different results and can be applicable to a variety of market conditions. 

Here are some core differences between any trading strategy or method in the financial markets:

  • Time frame - trading types can range massively in terms of time frame. Some strategies involve buying and selling at breakneck speeds, with thousands of trades in a day, while others involve holding on to a position for years on end. All this depends on the objectives and risk tolerance of the trader involved 
  • Risk - speaking of risk, some strategies are considerably riskier than others and while all strategies carry some degree of risk, the difference can be stark. For example, a day-trading strategy can be much riskier than a long-term position trading strategy, depending on the assets involved
  • Returns - it goes without saying that different strategies can have vastly different returns for traders and while no strategy can guarantee stable returns for certain, some are considerably more predictable than others 
  • Position size - some strategies may involve opening and closing trades in a matter of seconds and depending on the liquidity of the asset, traders may be constrained in terms of position size, while long-term trades may allow for a much more substantial investment
  • Leverage - the use of leverage, as well as the reasons behind it, may vary depending on your trading strategy and the asset of choice. For example, forex day-traders are considerably more likely to use leverage than long-term stock traders 

Core Types Of Trading

When it comes to the types of trading, or trading strategies, there are a lot of choices you can consider depending on your risk tolerance, time horizon, and amount of capital in your account. 

However, there are a few key strategies with distinct characteristics that have emerged in the financial markets over the years and a vast majority of traders subscribe to the principles of at least one of them. 

It is especially important for beginners to understand the features of these strategies to deceive which is the most sensible choice for their trading objectives. 


Day trading is a trading strategy in which individuals buy and sell financial instruments, such as stocks, currencies, commodities, or derivatives, within the same trading day. The main goal of day-trading is to profit from short-term price movements in these assets. 

In general, day-traders refrain from holding positions overnight, instead closing all positions before the end of the session. 

Some common features of a day-trading strategy include:

  • Short-term trading - as the name suggests, day-traders open and close positions on a short timeframe. Typically, a day-trader will go through hundreds of positions during any given session
  • Leverage and margin - Some day traders use leverage and trade on margin, which allows them to control larger positions with a smaller amount of capital. This amplifies both potential profits and potential losses. This is especially true for forex traders 
  • Technical analysis - Day traders often rely heavily on technical analysis, using price charts, indicators, and patterns to make trading decisions. They look for patterns and trends that suggest potential price movements
  • Volatility - day-traders will pick highly volatile assets to make sure they get the most out of each trade and slowly build up their gains during the say
  • Risk management - given the volatility of their trades, day-traders almost always employ stop-losses to limit their potential losses from a position 

Swing Trading

Swing trading is another popular trading strategy that aims to capture price "swings" or short- to medium-term trends in financial markets. Unlike day trading, swing traders hold their positions for more than a single trading day but typically for a few days to several weeks. 

The main goal of swing trading is to profit from price movements within a trend, whether that trend is bullish or bearish. 

Swing traders also use a decent amount of technical analysis and deploy technical indicators, such as the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), Bollinger Bands, exponential moving averages, etc. 

These technical indicators serve to smooth out price data and present clearer definitions of trend formations on a chart. 

Swing traders trade at lower frequencies than day-traders, but the overall frequency of their trades depends on the interchangeability of market trends and time horizons can vary. 

Carry Trading

Carry trading, also known as carry trade, is a trading strategy that involves borrowing funds in a currency with a relatively low interest rate and using those funds to invest in a currency or asset with a higher interest rate. The goal of carry trading is to profit from the interest rate differential between the two currencies or assets.

Carry trade is typically used in forex trading. Here’s how the strategy works:

  • The trader borrows money in a currency with a lower interest rate, often referred to as the "funding currency." This borrowing is typically done through the forex market where currencies are traded in pairs
  • The borrowed funds are then used to invest in a currency or other asset with a higher interest rate, which is known as the target asset. The target asset may be a government or corporate bond, or another interest-bearing asset
  • The trader earns the interest rate difference between the two currencies or assets on a regular basis. If the interest earned on the target currency or asset is greater than the interest paid on the borrowed funds, the trader makes a profit from the carry trade
  • In addition to interest rate differentials, carry traders also consider potential changes in exchange rates between the two currencies. A favorable exchange rate movement can further enhance profits, while an unfavorable movement can lead to losses


Scalping is a popular short-term trading strategy that involves making multiple trades in quick succession throughout the day to capture small price movements. Scalpers aim to capitalize on very short-term price movements and profit from the bid/ask spread. 

Scalping is a high-frequency strategy where traders use technical indicators to identify, open and close positions as soon as they generate a small profit. 

Scalpers typically aim for small gains on each trade, but because they execute a large number of trades, these gains can add up over time. Risk per trade is usually kept relatively low to manage potential losses.

The technical indicators often used in scalping include moving averages and oscillators. 

Position Trading

Position trading is the strategy most people imagine when they hear the word ‘investing’. A position trader is less likely to use very extensive technical analysis and rely more heavily on fundamental factors, such as financials and macroeconomic trends, among others. 

Position traders may hold their trades for months or even years, hoping to gain substantially from long-term price movements. 

Position traders may open trades with a substantial amount of capital, as their gains depend on long-term fundamental factors and they typically ignore short-term price fluctuations, or they may trim or increase their positions as market conditions evolve. 

Position trade can differ considerably between assets, as different micro and macroeconomic factors can affect stocks, crypto, FX, etc. 

Key Takeaways From What Are The Core Types Of Trading In The Financial Markets

  • Trading strategies in financial markets differ considerably in terms of time frame, position size, trade frequency, technical and fundamental factors, etc
  • Some of the core types of trading include day-trading, swing trading, carry trade, scalping, and position trading, among others 
  • Depending on the asset class and strategy, traders can expect different returns and each strategy may be more effective during specific market conditions

FAQs On Core Types Of Trading

What is the best type of trading long-term?

Of the core types of trading, position trading is the strategy with the longest average time frame. Traders typically hold their positions for months or years and ignore the short-term price fluctuations on the market. 

How many trading types are there?

In general, there can be dozens of different trading types on the market. However, the most commonly used strategies include scalping, day-trading, swing trading, carry trade, and position trading. It must be noted that there may be some overlap between any of these strategies. 

Is scalping a trading type?

Yes. Scalping is a type of trading strategy that involves making quick trades over a short period of time for incremental profits. Scalping typically happens during trend reversals and breakouts, where sudden price movements in either direction are more frequent.