Have you ever thought about why a huge number of all forex trades are closed during one day? Because of a high level of volatility, the price of currencies changes every day. Thus, a lot of traders choose to open and close positions within one day. Therefore, it's very difficult to predict the price movement in the long-term perspective. In this article, you will get to know what day trading means, how to trade properly on a daily basis, what forex day trading rules are, and how to get started with Forex trading.
What Is the Forex Market?
Forex Market is a global marketplace for exchanging foreign currencies for commercial, trading, or touristic purposes. This is the largest market worldwide due to the huge circulation of trade, commerce, and finance.
One of the most interesting things about Forex is that there is no central marketplace. Transactions are processed via computer networks among traders worldwide. Everybody can trade on the market 24 hours a day, five days a week. Currencies are traded all over the world in financial centers, including London, Sydney, Tokyo, Hong Kong, Frankfurt, New York, Singapore, Paris, etc.
A Brief History of Forex
Foreign exchange holdings rose by 10.8% from 1899 to 1913, while gold holdings rose by only 6.3%. This emphasized the importance of the Forex appearance.
The famous Bretton Woods System was created in 1944. It has the dollar as the world's reserve currency since the US held ⅔ of gold reserves.
When it comes to the modern Forex market, it was born in 1973, when the foreign exchange stopped being controlled by the state. The collapse of the state control above the foreign exchange caused the building of conditions for the free market and complete floating.
Why We Can Trade Currencies
Before the invention of the Internet, individual investors didn't have access to currency selling and buying. A list of currency traders included hedge funds, multinational corporations, and high-net-worth individuals. The main reason for this was that Forex trading required a lot of capital. After the Internet appeared, individual traders started interacting with each other easily via banks or brokerage platforms while building a secondary market. Many online brokers or dealers provide their customers with very high leverage, which allows trading in high volumes with a small account balance.
An Overview of Forex Markets
Forex is the most actively traded market all over the world. On the market, around $5 trillion is traded every day. This is more than worldwide equities by 25 times.
Forex is an over-the-counter market enabling its participants to trade at online platforms and via telephone. Currently, an amount of futures and options reaches 3 percent of the foreign exchange.
The foreign exchange market includes currencies from every country. However, only seven major currencies are USD, EUR, JPY, GBP, CAD, CHF, and AUD. Thus, the Forex market contains seven major currency pairs, including USD/CHF, EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD, and USD/CAD. All the currency pairs contain USD as a basic or quoted currency. The main reason for the involvement of the USD in the currency pairs is that USD is the reserve currency worldwide. It can boast of the world's biggest economy with a stable political system. As compared to other currencies, it has the highest amount of strength. Besides these major currencies pairs, there are other currency pairs traded on the Forex exchange. A list of these currency pairs includes minor and exotic pairs.
Minor currency pairs consist of a couple of major currencies except for the USD. Some of these pairs represent pairs of countries with active trade relationships.
When it comes to exotic currency pairs, they contain a major and exotic currency. Exotic currencies don't belong to major or minor currencies, for instance, HKD (Hong Kong dollar) or NOK (Norwegian Krone). Some of them have a low level of liquidity, and some have a high level of liquidity. Traders focus on selling and buying 18 exotic currencies, while there are around 150 countries with developing economies.
What a Spot Market is
A spot market is a market where financial instruments, currencies, including commodities, and securities are exchanged for immediate delivery. This means that cash is exchanged for financial instruments.
A spot market is also named a "liquid market" or "cash market." This can be explained by the fact that cash is immediately exchanged for the commodity. While transactions between a seller and buyer can be processed slowly, all the participants of the spot market trade right now without prolongations.
How the Spot Market Works
When it comes to the spot market's work, a price of non-spot deals is specified at the moment, but a transaction is processed later. Expiring deals refer also to spot trades because participants of the expiring deal can immediately swap cash.
A spot price is the current price of the financial instrument. At this price, a financial instrument can be traded at the moment. By making a buy and sell order, traders create a spot price. While an order is filled and a new order is opened, the spot price may shift by the second.
What Forwards and Futures Markets are
Futures and forwards are contracts applied by businesses and investors to hedge against risks. They belong to the derivative assets. Both types of contracts depend on the settlement of the price of the asset. However, they differ from each other. Underlying assets include financial assets, commodities, and others. Financial assets include market indices, interest rates, currencies, bonds, stocks, and much more. Commodities include gold, silver, oil, coffee beans, etc.
What is Forex Day Trading?
Day trading on the Forex Market is an approach by using shorter-term charts. This type of trader manages positions during a short period from minutes to hours by using technical tools. This type is the best way to trade on volatile markets because it focuses on the short-term charts.
Forex day trading time frames are shorter than time frames used by the position traders while opening their trades for a couple of months to even a year. Compared to the scalping approach, day trading time frames are longer since scalpers exit their positions within several minutes.
Forex Day Trading for Beginners: How to Get Started
If you have decided to get started with Forex day trading, you need to understand that this is a challenge requiring a high level of preparation. Therefore, the first thing you need to do is read Forex day trading books, learn guidelines, watch tutorials online to learn more about the particularities of day trading, and get new skills.
To get a profit while buying and selling on a daily basis, you need to combine the tools of technical and fundamental analysis. In addition, traders need to obtain sufficient capital. A large amount on balance can bring great yields while compensating the time spent by the trader.
One of the most important conditions for day traders is access to the charts during the period that they want to spend on trading per day. If a trader loses access to a computer or mobile phone, they miss a lot of essential information that can be used during the trading process.
One of the most important challenges for day traders is specifying risks and protecting their funds from risks using an effective risk management strategy. To protect their assets from available risks, traders need to trade not more than a fixed percentage of their capital a day. In addition, they need to start dealing with small amounts and use well-thought-out stops and limits.
Day Trading Forex Strategies for Beginners
We want to offer you basic trading Forex strategies. You can use one of these trading strategies or combine them and create your own style to get more profit. In addition, you need to determine what your main goals are and use strategies according to your goals. Here we go!
The most popular day trading techniques are:
Following the trend
This technique lies in purchasing assets while a price is rising and selling while a price is dropping. In this case, traders expect that the price movement will be the same.
Scalping strategy enjoys huge popularity among forex traders. It involves placing multiple orders throughout the day in order to profit from minute price changes. It works great for volatile instruments. A single trade does not promise high profit and is closed after gaining about 5-20 points. But a large number of successful trades like this may bring some impressive results.
Traders use this strategy to buy while a price is falling and purchase while a price starts to drop. They expect that a trend will change in the future.
Trading the news
Participants of the market who use this trading technique purchase while great news is announced or sell while bad news is announced.
Same as the trend trading, the fade (or fading) strategy implies speculation on trends. Traders who adopt the fading strategy go against the prevailing trend and benefit from trend reversal. A trader will sell an instrument when its price goes up and buy when it goes down right before the trend changes direction. This is considered to be a high-risk approach used primarily in times of major economic events. It requires a quick reaction and, if implemented correctly, promises impressive gains.
People who "trade in a range" know how price typically acts throughout a day and use it to their advantage. If not talking about any economic events, the price action tends to repeat itself. Knowing an instrument’s highs and lows (support and resilience levels) allows you to predict when the price will change direction and accordingly when you want to enter or exit a trade.
The idea of the momentum strategy is that a trader finds a currency pair that already shows a particular trend and is expected to continue moving in the same direction for a while. For example, buying USD/CAD when the oil prices (and the Canadian currency) experience a decline.
The daily pivot trading strategy implies buying at the lowest price of the day and selling at the day's highest price. To determine those, traders use the pivot point calculation.
A pivot point is a great tool widely used in the forex market to predict short-term trends and reversals. Although there are a few methods for calculating pivot points, the most popular one is known as a 5-point system. It involves the previous day’s highs and lows and close as well as two support levels and two resistance levels.
Pivot points are essential for intraday traders when it comes to understanding market trends and choosing entry and exit points. Those in their turn are helpful in identifying the right stop-loss levels and profit targets. Besides, they show whether the market is bullish or bearish. If the trading takes place above the pivot point, it indicates the ongoing bullish sentiment. Conversely, price action below the pivot point is a sign of bearish sentiment.
Forex Day Trading System
Forex day trading systems are tools that help currency day traders figure out the best timing to buy or sell currency pairs. They include graphical interfaces with technical charts. These systems are optimized for common intraday strategies described above and broadly divided into two types: manual systems and automated ones. A manual system requires much of a trader’s involvement (chart monitoring and reaction to signals). An automated system reacts to signals according to settings chosen by a trader in advance.
Forex Day Trading Tips
- Frequent trading implies frequent entry costs. This is why narrow spreads are particularly important when adopting this approach. You might do everything just right, but if the difference between the bid and ask prices is too big, the profit will vanish each time you close an order.
- Trade highly volatile pairs. It is the fast market moves that make this trading style so profitable. Although low volatility sounds safer, it might make you wait for hours before the price will reach the desired level. The most volatile thus the best day trading currency pairs are considered to be EUR/USD, GBP/USD, and EUR/JPY.
- Currency day trading is a time-consuming approach, and many traders forget about it. This approach requires a lot of time and discipline . If you want to make any significant profit from intraday trades, consider forex your full-time job.
- Keep an eye on major economic events. The success of each of the above-mentioned strategies is based on fundamental analysis. Following up on macroeconomic news is essential for intraday traders.
- Technical analysis must be a foundation for any conscious trading decision. Technical indicators will help identify market direction as well as the best entry and exit points. Subscribe to our daily newsletters that will help you pick up on market signals.
- Don’t forget about risk management. This is something novice traders tend to ignore; hence they often lose money. Decide on an acceptable risk-reward ratio first and apply day trading strategies that work for you.
How to Learn Day Trading
It is wise to start exploring forex by opening a demo account and trading virtual money first. If you are a new trader, a teaching account is what you need. It uses the same platform as the real account, shows the real-time streaming quotes, and prevents you from losing. A demo account does not imply gaining any profit, but it is a great tool for testing your strategy.
For those confident in their skills, Justforex offers day traders attractive conditions, including narrow spreads and 0% withdrawal commission. Open a trading account and make a profit today.
In conclusion, day trading is buying and selling assets in short time frames. This type is a great way to trade on the Forex market because of the high level of its volatility. The most effective day trading methods list includes following the trend, scalping, contrarian investing, and trading the news strategies. You can choose one of these strategies or mix them to create your own unique trading style.
What is day trading?
Day trading is a general term for trading strategies that involve opening and closing trades within a single day without keeping them overnight.
Can you day trade on multiple platforms?
Yes, you can. However, the trades must not contradict the Company Policy and the Client Agreement; otherwise, such trades will be considered fraud.
Is forex good for day trading?
Yes, it is. Forex is a highly volatile market. It enables traders to make a profit from daily fluctuations of currency prices. This factor makes day trading popular among forex market participants.
How much do forex traders make a day?
There is no limit on daily profit in the forex market. The profit size correlates with the size of your investment and the level of expertise.
Can you get rich by trading forex?
Yes, you can. Many experienced traders have a proven record of high-profit trades and make a living trading currency.
Can I start forex with $100?
Yes, you can. A $100 deposit is sufficient for trading on any of the existing Justforex accounts.
Can I start forex with $5?
Yes, you can. The minimum deposit on Standard Cent and Standard accounts on Justforex is $1.