Forex trading is no longer a novelty in the financial world. It has conquered the entire system, engaging millions of people in it who seek to make a fortune by currency trading. However, it should be said that nothing is as simple as it may seem, and becoming a master trading requires years of practice and a thorough understanding of financial markets. Long before the advent of personal computers, instant messaging, and complex programs, many Wall Street brokerage firms used veteran traders to interpret paper tapes of exchange transactions that erupted from mechanical tickers across the city. Similarly, in Forex the development of modern technology contributed a lot to the introduction of trading platforms and more complicated strategies and computers have helped a lot to traders. Trading strategies have also become more widespread and in this article, we will talk about day trading in FX.
Determining day trading on Forex
By definition, day trading is a common practice of buying and selling one or more items of shares in one trading day. No position, long or short, is held overnight. Day traders often deal with thousands of stocks and seek small percentage gains on each transaction, often less than $1 or $2 per share. They open positions based on an analysis of the likely price direction of shares during the trading period. Day trading strategies include:
- Traders sell assets as soon as the price for them rises a little. This strategy is effective if most small trades are indeed in profit, and the trader equally quickly reduces losses.
- Daily vaults. Assuming that many stocks are traded in the daily range, day traders can buy at a low price (support level) and sell at a high price (resistance level) or vice versa.
- Traders buy stocks if they move up with an increase in volume. And sell when the price moves down in volume, assuming that the price direction will continue its movement.
According to Axiory, these methods differ from the methods of an arbitration trader, which often forces daytime trades to exploit the discrepancies between the share price and the derivative. For example, an options trader can identify a stock trading of $50 per share, while a call option to buy shares at a price of $45 per share is sold at a price of $2 apiece. The trader will buy an option allowing to own shares of $47 per share ($2 per option plus $45 per option) and the possibility of a short sale of shares at a price of $50, thereby blocking the profit of $3 per share.
🏆10 Best Forex Brokers in South Africa
| Rank | Broker | Broker Review | Regulators | Minimum Deposit | Visit Broker |
|---|---|---|---|---|---|
| 🥇 |  | Read Review | ASIC, FSA, CBI, BVI, FSCA, FRSA, CySEC, ISA, JFSA | $100 | Visit Now |
| 🥈 |  | Read Review | FSCA, FCA, DFSA, FSA, CMA | $0 | Visit Now |
| 🥉 |  | Read Review | CySEC, IFSC, DFSA, FCA | $5 | Visit Now |
| 4 |  | Read Review | ASIC, CySEC, FSA, SCB | $200 | Visit Now |
| 5 |  | Read Review | FSA, FSCA | $250 | Visit Now |
| 6 |  | Read Review | FSA, FSC, FSCA, ASIC, CMA | $20 | Visit Now |
| 7 |  | Read Review | FSC, FSCA | $50 | Visit Now |
| 8 |  | Read Review | ASIC, CySEC, FSCA, FSA, FSC, CMA | $100 | Visit Now |
| 9 |  | Read Review | CySEC, MWALI, FSCA | $25 | Visit Now |
| 10 |  | Read Review | FSA, CySEC, FSCA, FSC | $10 | Visit Now |
Day Trading on Forex
A lot of prominent Forex traders use day trading during their activity. Some of them even have their top 5 FX day trading strategies that only work for them. Day trading is extremely stressful, risky activity and in general, traders do not expect to do it all the time. Rather it is a source of large income, which eventually allows traders to become successful entrepreneurs in other fields.
Time spent
Day traders can easily spend 60 to 70 hours a week either on trading or on preparing for trading. Of course, they need to focus on the market during certain trading hours to determine short-term opportunities for profit. In addition, they should be aware of current news, including income reports and forecasts, important events, and other events that could potentially affect their positions. Many traders spend the night preparing for trading sessions the next day, identifying potential profit opportunities. Finally, day traders can trade in international markets that are open in the U.S. in the evening and at night.
Risks of day trading on Forex
Despite the benefits, day traders must manage a number of financial and psychological risks:
- Capital losses. Even if most of the trades you closed with a profit, before you started trading, you had to pay significant upfront costs such as hardware, software, and initial news services. In addition, running costs such as ECN commissions (or commissions if the trader does not use ECN), interest, real-time information collection, financial analysis and charts, and communications costs, all of which you should consider.
- Market movement. Making money is hard when the market moves less than 100 points in any direction compared to the previous day. According to MoneyBeat, 2013 was one of the least volatile years for the S&P 500, averaging 0.55% below the average since 1928. Delays in trading can turn a potential profit into a loss.
- Psychological addiction. In this type of trading, it is very easy to succumb to gambling, as day trading is very similar to gambling. Whatever this happens needs to develop clear rules for trading.
It should be said that when people start Forex trading they think they will get rich immediately. The idea of becoming wealthy in a short time is what attracts people to day trading. But unfortunately, not always you will succeed, the chance of failure, financial loss and depression are more likely results.
Conclusion
So here comes the main question should you continue day trading on Forex or abandon it? Well, the straightforward answer to this question is very difficult because we have seen that it has advantages as well as disadvantages. But it is always a good idea to focus on the long term rather than the short one because the chances you will get a more solid income increase significantly.
You Might Also Like
Recommended brokers
