Day trading in currencies is the act of buying and selling currencies on the Foreign Exchange market, otherwise known as Forex. More than $4 trillion are traded on Forex every day, making it the largest financial market in the world, dwarfing others like the New York Stock Exchange which might only see $25 billion in volume on any given day.
How do I trade Forex?
In order to trade on the Forex market, you are essentially following the same mantra of the stock trader: “buy low, sell high.” However, in the case of Forex, you are buying currencies rather than stocks. When you invest in the Forex market, you are speculating on the future value of a given currency. If the value of the currency you invest in goes up, you make a profit. If the value of the currency goes down, you lose money. Sounds simple enough right? Wrong.
The value of any given currency is in constant flux. Economic, social, political and even natural events can influence the exchange rates of currencies at any given time, making the speculation on whether a currency’s value will rise or fall a tricky business. That’s why it’s very important to learn currency trading inside and out before taking the plunge into currency day trading.
What’s the best way to learn currency day trading?
The best way to learn how to become a successful day trader is to take your time and practice on a demo account. All of the major currency trading brokers offer these accounts for free. The demo accounts allow you to not only learn the currency trading platform, but to do so using real market conditions without risking your own money. It’s a good idea to open a real trading account only after you are consistently making a profit on your demo account. One successful trade does not mean you are ready to move to a live account. Take your time and prove to yourself that you are ready before putting your money on the line.
How do I limit my risk once I open a live trading account?
Once you’re trading with real money, it’s crucial to develop a solid risk management strategy and stick to it. The most important part of your strategy is to be honest with yourself and determine how much you can afford to lose. Another key way to manage your risk is to make use of your trading platform’s built in risk management features, which include “stop-loss” and “take-profit” orders. With stop-loss orders, the trading platform will automatically cap your losses using a predetermined exit point. Take-profit orders work in the opposite way and allow you to automatically exit a trade once you’ve reached a predetermined profit level.
If you’ve decided to become a currency day trader, it’s important to realize that there are financial risks involved. These can be minimised though by taking a currency trading tutorial, developing a sound strategy for minimising your risk, and making use of your trading platforms built in safety features. By following these important tips you will soon be well on your way to becoming a successful day trader.