Day Trading Explained

Many financial investments require long-term thinking. You invest money today with hopes that you will earn a profit in the coming months or years.  Forex day trading is different because the goal is to earn quick profits on trades completed within a single day.

Many traders prefer to predict the rise and fall of currencies over a period of time based on economic conditions in different areas of the world, but forex day trading strategies require you to trade based on fluctuations predicted to occur by the of the trading day.

In order to qualify as a day trade, you must open and close a trade within the trading cycle of one day. Some trades may not complete by the close of the market the same day, and you may pay a fee for rolling those trades over into the next trading day. Day traders try to make trades that will complete within one trading cycle so that those fees are avoided.

If you complete a lot of day trades on a routine basis, your brokerage firm may mark you as a pattern day trader. Forex trading rules are different for this type of account, but most heavy day traders will end up with this designation due to the number of day trades completed each week. Check with your brokerage to determine the rules surrounding pattern day trading accounts.

Forex Day Trading Explained

Day Trading Advantages

Many traders find Forex day trading addictive because of the potential for fast profits. By the close of the market each day, you can have your earnings in your account and ready for another day of trading come morning. The simple fact that each day starts out 100% cash is a great feeling as well. Even though there is the risk of taking a loss over the course of any given day, the potential to perfect Forex strategies to the point you earn profits most days is attractive.

Short-term trading also places less emphasis on the long-term effects of economic and political events. Some traders enjoy watching these events unfold and predicting the corresponding ups and downs of the market, but many day traders prefer to stick to short-term analysis. This takes less time and can reduce some risk that is involved with long-term Forex predictions. Note that this doesn't necessarily mean that day trading comes with less risk.

If you aren't able to trade daily or worry that you can't keep up with long-term trades, Forex day trading allows you to earn profits on days that you are available for trades without worrying about open trades on other days. This is a flexible trading arrangement that works for many people invested in full-time day jobs, families and other commitments that consume a lot of their time.

Forex Day Trading RiskDay Trading Risks

You can lose a lot of money in a short period of time with day trading. This risk is always there due to the volatility and unpredictable nature of the Forex market, but it is amplified when you place a lot of short-term trades.

While the profits come fast, the losses can come just as fast if your trading strategies don't work in your favor.

Day Trade Forex Strategies

Since trades are completed in a short period of time, every day is a new opportunity to try out new approaches. You should get comfortable with at least two strategies that you can fall back on whenever you place trades. That gives you some options to place sound trades while you continue experimenting with other Forex strategies.

The simplest and most basic strategy is to trade based on current events. Turn on the news and see what is happening in the world. When something occurs that may change the political or economic stability of a region, you can predict that it will cause a short-term fluctuation with one or more currency. That is your cue to take advantage of the moment and make a quick trade or two. Fast action is important because you aren't analyzing the long-term ramifications of the event. You are trading solely on what you expect to happen within the course of a single trading day.

As you become more comfortable with Forex day trading, you should start investing larger sums of money in each trade. This is a unique strategy to day trading because the rewards are amplified with larger investments placed within a short period of time. Using leverage, it is possible to place substantial trades and earn significant profits within a 24 hour period. Just remember that you stand a greater chance of losing money the longer you hold onto a currency. Leave emotion out of the equation, and never invest more than you can stand to lose.

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