If you maintain a consistent trade management strategy, day trading can be a worthwhile trading avenue to begin Forex trading. Remember, starting out on your own may have some challenges that most beginner traders face today. Nevertheless, preparation and a well-designed trading strategy can help you on your way to becoming a successful day trader on Forex.
Don’t forget, whether you are new or a seasoned day trader, everyone faces minor/major rough patches on Forex irrespective of level and experience in Forex trading. The only difference is that the successful day traders bounce back with improvised tactics and strategies.
The Forex Trading Market
Forex market is one of the largest decentralized global trading markets that work 24 hours a day. In fact, it stays open 5 days a week with limited activities during weekends. Currently, the Forex market has a total estimated worth of over $2,400 trillion, according to the Bank of International Settlements.
Operating as a digital network comprising brokers, banks, individual investors/traders, and institutions, it is largely decentralized. With its huge market cap and global operations, the Forex market has a trading volume of nearly $6.6 million every day.
However, traders have to stick to regulations, policies, and certain techniques. Not to forget, you must choose a trading style that defines your trading success in relevance to your knowledge. So, here’s what you should know about day trading.
Forex Trading: Day Trading in Forex
As the name suggests, day trading refers to Forex trading done within the span of a single day. In any marketplace, day trading doesn’t involve leaving trading positions open for longer than necessary, especially overnight.
It requires great market knowledge, the know-how of market trends, and of course, a good amount of trading funds. Day trading involves using high leverage, which can lead to substantial short-term trade profits. It is the capitalization of small fluctuations and movements in the prices of stocks or Forex securities to make a sizeable collective profit.
Furthermore, day trading demands staying updated on national, local, and international news in order to identify any future shortcomings or potential for profits. Economic changes, market trends, and other statistics help determine the short-term market movements. Hence, day traders rely on them for profitable trades.
Pros of Day Trading
- Flexible Trading Time: Day traders can make many small trades to end with a collectively large sum of profit. On the other hand, they may go for one or two considerable profitable trades a day. Therefore, they can choose their time of trading and don’t need to stick to the trading charts and timeframe calendars on a computer screen.
- Chances for Higher Profits: Since the trades are small but frequent, experienced day traders can compound sizeable profits. They can invest it in potentially larger and profitable trades in their next day trades.
- No Overnight Market Effects: As day traders do not leave their trading positions open overnight, they are less likely to experience the effects of any overnight or unaware market conditions.
Cons of Day Trading
- Increased Trading Costs: It is one of the side-effects of being a day trader. As most of them intend to operate multiple small or large trades throughout the day, they require substantial funds to do so. Besides, they may have to provide additional fees and trading costs in terms of brokerage services.
- Over-Leveraging: It is best to assume that the most significant market movements occur during the time when the trades are at their low. Therefore, during the minute market movements, day traders utilize considerable leverages to power their trading positions. This helps them generate small profits in high frequency. However, with over-leveraging, a single instance of market fluctuation against you can cause you substantial losses.
- No Bigger Picture: While other long-term or medium-term traders keep trading positions open for longer periods, they are more likely to benefit from larger gains in the Forex market. Conversely, day traders are unable to benefit from the greater market fluctuations that may occur over time.
Day trading has incredible potential when it comes to making sizeable profits in a matter of a few minutes. But, there are complications that arise due to the limited timeframes. Thus, you should have the ability to make tough decisions, critical thinking, and foreseeing patterns early in the trading cycle.
Hence, it is valid to assume that only experienced and knowledgeable traders have a high chance of success. But that shouldn’t stop you from pursuing your dream if you have the passion and the right trading strategy.