What is Forex Day Trading?
Forex trading is generally a twenty-four hour commitment that requires your full attention and in depth knowledge on how Forex markets work. Although you may be able to avoid deep losses with the use of automatic Forex trading software, most that engage in Forex day trading do so on behalf of banks and large financial institutions. One should not pursue Forex day trading if they are not prepared for the inherent risks involved in such an investment or do not fully understand Forex.
Forex day traders will actively trade in short bursts and will generally end the day with no investments outstanding. This differs from swing trading, where the investment lasts days to weeks and position trading which lasts months to years. As such, the Forex day trader will need to watch the Forex quotes constantly for profitable trends and act quickly to avoid losses.
Forex day trading is a misleading term. Although you may trade within a time frame of your convenience, currency markets generally trade 24 hours a day, generally with no trading occurring on Saturdays. Therefore, you will find many individual Forex day traders active as early as 5am to find the latest news and make investment decisions on the Euro. After all, national banks and other important economic bodies will make decisions that affect Forex rates in accordance with their local time and not a time that is convenient to the day trader. If you cannot function this early in the morning or cannot commit to the time needed to research an investment properly, then you should not engage in Forex day trading.
Remember that large financial institutions will always have better information and market access than individual day traders and will happily use this leverage to make a profit. Conventional rules such as a ban on insider information in the stock market do not apply to Forex markets and Forex day traders will need to be perpetually aware of rumors and tips as well as news that affect their investments.
In short, Forex day trading requires diligence, quick thinking, broad knowledge of international finance and most importantly, the ability and time investment to make trades constantly in front of the computer. Most aspiring Forex day traders will lose their initial investment when they are not aware of the risks and fail to invest enough time in monitoring the Forex quotes. Due to this, one needs to be suspicious of Forex trading training programs that promise guaranteed profit or easy investing.
As with all investments, no volume of returns is guaranteed and an individual trader will always be at a comparatively greater disadvantage when investing than the risks taken by banks and other institutions. Minor fluctuations, such as gains or losses of .001 cents on a foreign currency can potentially create massive profits or the total loss of an investment. The best Forex day traders are those that have cultivated prior experience with somewhat less risky macro and long term Forex transactions, such as swing and position trading. Even then, those forms of trading depend on timing and information to buy and sell at the right times, which puts a new Forex day trader at a distinct disadvantage.