Skip to content Skip to sidebar Skip to footer

What is Forex Day Trading and How do You Get Started?

how to day trade forex

Forex trading is the exchange (or trading) of currencies on the foreign exchange market. Trading occurs in currency pairs such as the EUR/USD (the euro versus the U.S. dollar) and the USD/CAD (the U.S. dollar versus the Canadian dollar). As we have discussed throughout this guide – if you want to day trade forex online – you need to have an account with a safe and low-cost broker. Your chosen platform not only needs to offer competitive fees, but heaps of forex markets and of course – support for your preferred payment method. To counter this, forex intraday traders will often place multiple buy and sell orders throughout the course of the day. This ensures that small gains quickly build up and thus – can make day trading lucrative for those that are able to consistently predict the currency market correctly.

Explore Guide to Forex Trading

Historically, these pairs were converted first into USD and then into the desired currency – but are now offered for direct exchange. In order to make a profit in foreign exchange trading, you’ll want the market price to rise above the bid price if you are long, or fall below the ask price if you are short. Forex trading is the process of speculating on currency prices to potentially make a profit.

Countertrend Trading

If this is your first-time day trading forex, it might be a wise idea to start off with the eToro demo account. This will enable you to day trade without risking any funds – with all buy and sell orders reflecting real market conditions. One of the biggest mistakes that newbie forex day traders make is to enter a position with a market order. This means that the broker will execute your position instantly at the next best available price. Another great strategy to consider as an inexperienced forex day trader is to avoid minors and exotics and instead focus on major pairs. These are forex pairs that always consist of a strong currency that is traded against the US dollar.

Trend day trading

The goal of this strategy is to ensure that no single trade or trading day has a substantial negative influence on the account. As a result, a trader knows that they will not lose more money in a particular deal or day than they can recoup in another by setting a risk limit equal to the average daily gain over a 30-day period. So he is less interested in the higher time frames, such as the daily or monthly timeframes. If trading the London session, the Forex day trader would plan to close open trades by the session’s close at 4 PM. Forex is a huge financial market, trading over $6.6 trillion 24-hours, five days a week. A reading of 80 or higher indicates overbought conditions and is a signal for the trader to sell.

The major issue is that a losing position is being maintained and compounded when the market suggests that the original trading idea has failed. A currency day trading system provides traders with information to help them decide whether to purchase or sell currencies. Each trade entails purchasing one currency while simultaneously selling another, referred to as the currency pair. Range trading, sometimes referred to as channel trading, is a day trading strategy that starts with an understanding of the recent price action. Day traders looking to maximize intraday profits often use one or multiple of the following day trading strategies.

This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you.

Once you’ve decided on a strategy, you can practice in a demo account and create a trading plan. Ideally, since day traders tend to be fairly active in the market, you’ll want a broker with tight dealing spreads to keep costs down. Forex day traders can often profit from the notable volatility that follows an important news event when the news deviates substantially from the market’s expectations. Accordingly, news traders might regularly review calendars of economic data releases and news feeds to identify possible trading opportunities.

The risk in executing such trades is limited as they aim to profit from minor pullbacks. Relatively new to forex day trading and still not sure whether this investment scene is right for you? If so, below we cover the main benefits of day trading forex from the comfort of your home. With this in mind, the best time to trade forex is during standard market hours – which runs from 5 p.m. This takes into account the global nature of the forex trading arena, with the Asian markets opening proceedings and the week closing in the US. The liquid major pair in the forex market is EUR/USD – which will see you trade the exchange rate between the euro and US dollar.

The prime directive when scalping is to take small profits or even smaller losses on positions that only remain open for a few seconds to a few minutes. Realistically, capital of at least $2,500 should be used, and even this is a relatively small amount. Trading accounts to be used in fast-moving markets, like foreign exchange, should account for some margin of error and the unexpected. Successful day traders are usually analytical, disciplined, not impulsive and non-emotional while they’re trading. They set their personal goals and manage their time effectively, so it’s also important to be organized and focused. You should always choose a licensed, regulated broker that has at least five years of proven experience.

how to day trade forex

You can make a profit by correctly forecasting the price move of a currency pair. If you’re new to forex, you can begin exploring the markets by trading on our demo account, risk-free. The forex market is the largest financial market in the world with a daily volume of $6.6 trillion.

Instead, your chosen forex broker will give you an allocation of paper trading funds. For example, eToro offers a demo account without time restrictions that comes pre-loaded with $100,000. This allows you to test out your day trading skills in a truly risk-free environment. One of the best day trading forex indicators to use as a newbie is the relative strength index (RSI).

The trader effectively ‘doubles up’, or ‘doubles down’ if adding to a short position. This means that their new entry point looks more attractive than their original one. But by adding to a losing position, the trader is significantly increasing their potential risk. The trader may also be abandoning their original trading plan and ignoring their money and risk management rules.

It is the smallest possible move that a currency price can change which is the equivalent of a ‘point’ of movement. If you’re not sure where to start when it comes to forex, you’re in the right place. These regular gatherings involve discussion of monetary policy, interest rates, inflation, and other issues that affect currency valuations. If this is something that interests you, one of the best providers that we have come across is Learn2Trade. The provider – which has more than 22,000 members in its ever-growing forex signal Telegram group, has a historical win rate of 76%. Russia’s ruble, for example, dived in value against most currencies following the country’s shock invasion of Ukraine in 2022.

Forex brokers offer different trading platforms for use by their clients—just like brokers in other markets. These trading platforms usually feature real-time charts, technical analysis tools, real-time news and data, and even support for trading systems. Hedging in forex is a risk management strategy that is used to protect the gains or limit the losses on an open forex position. Traders use hedging techniques to protect their positions from abrupt market moves. To hedge a position, a trader can either open an inverse or opposite position to their existing position in the same currency pair.

You can choose from a debit/credit card (Visa, MasterCard, Maestro), bank transfer, or e-wallet (Paypal, Skrill, Neteller). Unless opting for a bank transfer, all other payment types are credited to your account instantly. Alternatively, you might even consider opening an ECN account, which offers 0 pip trading alongside a small flat commission.

how to day trade forex

Similarly, a news headline might impact the markets at any time, creating wild swings. While it may appear to be easy money to be reactive and grab some pips, doing so in an untested manner and without a good trading plan is a high risk strategy. In addition, it’s now the case that a higher return on your remaining money is required to recover any lost capital from the original losing deal. If a trader loses 50% of their money, a 100% return is now required to restore them to their initial capital level. Large sums of money lost in single trades or on single trading days might stifle capital growth for extended periods of time. Countertrend day trading is similar to trend trading except that once you determine your overall trend, you look for trades in the opposite direction.

Breakout trading is when you look at the range a pair has made during certain hours of the day and then place trades on either side, hoping to catch a breakout in either direction. Most range traders will use stop losses and limit orders to keep their trading in line with what they perceive to be happening in the market. For example, if the price has been rising off a support level or falling off a resistance level, then a trader might choose to buy or sell based on their perception of the market’s direction.

They may therefore rise in value when the market is becoming nervous about the macroeconomic or geopolitical landscape. Note that this is a simplified calculation, and does not take into account bid and offer spreads or potential fees. At this point Steve decides to exit his position, booking a profit of €518.18 in the process. He decides to trade the EUR/USD pair at 1.1 and selects a standard lot size of 100,000 units. They produce insights to determine how the news will be perceived by the market in terms of how much its price will be influenced.

  1. Footnotes 1 Tax laws are subject to change and depend on individual circumstances.
  2. As noted above, the only way that you will become a profitable forex day trader is to have a firm grasp of technical analysis.
  3. Scalping is an intraday trading strategy in which traders quickly go in and out of trades to generate quick profits from small price movements.
  4. By joining its premium signal service,   you will receive three forex signals per day.

They enable investors to easily access hundreds of different markets across the globe. With FXTM, you can access the forex markets and execute your buy and sell orders through our trading platform. News and Economic Data Investors and banks look for strong economies to place their funds, in the expectation that their capital will appreciate.

Forex day traders typically don’t use the lower timeframes, such as 1-minute, 5-minute, 15-minute or 30-minute timeframes. Managing your risk when day trading can be as important to your success as finding optimal entry levels for trades. Incorporating a risk management component into your trading plan can save you plenty of money and frustration. If you’re still interested in day trading currencies, then you can follow the steps below to get started operating in the forex market on your own as a retail forex trader. Scalpers can also pick the most favorable trading session to scalp a particular currency pair.

When people are talking about the FX market, they are usually talking about the spot currency market. The minimum deposits for forex trading accounts can be quite low and may not even apply at all. Due to the role of leverage in forex trading, however, it is a good idea to have enough risk capital in the account to actually engage in meaningful trading. Even if you can open an account with a $0 minimum, trading with smaller account balances is difficult and can severely limit the range of price action you can handle on any one position. Although there is no hard and fast rule, a balance of $2,500 in risk capital is a good starting point for developing your FX trading skills.

For example, markets are often more volatile at the start of the trading day, which implies that tactics utilised at the start of the day may not work later in the day. There may be a pickup in activity at the end, and yet another method can be adopted. If your P&L is positive at the end of the day, even if it does not match your expectations, you will be in a better position to succeed. Manual currency trading strategies entail traders watching for signals on their own.

As with all markets, forex has its pros and cons, but the basic market structure is the same. A trader buys or sells a particular amount of a chosen asset and then manages risk through stops and profit-taking levels. The forex market, similar to futures markets, has a tendency to move quickly and can be volatile. It also involves using margin leverage where a trader only needs to post a small percentage of the full value of their positions. This can lead to either large gains or losses, and sometimes both in the same trading session. The fast moves in forex, coupled with the high leverage of retail currency trading, means it is critical for traders to manage their risk appropriately.

Other primary FX market participants include the large international banks that make up the interbank market. The interbank market for foreign exchange is available to the other market participants through direct transactions with banks or through other market brokers. Some of these market brokers include platforms making foreign exchange trading available to individual traders. Trading foreign exchange markets involves buying or selling one currency in exchange for another. The goal of trading is to profit from the changes in exchange rates between the two currencies. To trade forex, you will need to open a trading account with a broker that provides access to the FX market.

Indicators may include a certain chart pattern, a breakout over an important resistance level, or below a significant support area, or the occurrence of a news item. Before participating in buy or sell activity, traders analyse those indicators. One significant advantage of forex day trading is that it eliminates the risks and costs involved with holding a position overnight, over the weekend, or when the market is closed. Day traders do not have to worry about gaps overnight or incurring the cost of swaps on their positions. News trading is one of the most traditional, predominantly short-term focused trading strategies used by day traders. The Forex day trader checks multiple timeframes to assess trend direction but typically enter trades on the 1-hour or 4-hour chart for intraday trading.

You can get started with a few hundred dollars day trading Forex in two hours or less. But the lack of capital significantly reduces income potential from day trading Forex. You can find multiple Forex day trading strategies, but our advice is to keep your Forex trading strategies simple.

These orders can be placed through the broker’s trading platform, which provides access to real-time pricing information and charts. To be successful in trading forex, you will need to develop a trading strategy that takes into account factors such as market conditions, news events, and chart analysis. Trades are sized in lots, with the standard lot representing 100,000 of the base currency (first of the pair). If you put a buy order in for USD/CAD, for example, you are betting on the U.S. dollar appreciating against the Canadian dollar, and this is considered a long position. If you put in a sell order for USD/CAD, you are betting on the Canadian dollar appreciating against the U.S. dollar, and it is a short position. Trading in the foreign exchange markets is not necessarily more difficult to trade than other markets.

Generally, prices will vary within a narrow range over a short period of time. Because some markets may fluctuate just a few points every session, intraday traders employ high-risk trading tactics to boost their profit margins. However, if you’re sticking to intra-day trading, you’d close it before the day is over. Many retail forex traders use the MT4/5 forex trading platforms from MetaQuotes how to day trade forex to run off-the-shelf or proprietary trading algorithms that are known as expert advisors (EAs). Forex trading involves all the usual suspects, like retail traders, large investment banks, regional banks, private wealth management firms, corporations, and so on. Unlike other financial markets, however, governments are also active participants in the foreign exchange markets.

As mentioned, the likes of the US dollar can rise when traders and investors are feeling nervous. At the opposite end of the scale, currencies like the Australian dollar and South African rand – counters that are closely linked to commodity prices – can rise when risk appetite picks up. They are waiting for information that they feel will move prices in one direction or the other.

Forex operates around the clock – so you can trade at any time of your choosing. However, it’s best to avoid trading over the weekend – as liquidity levels are significantly lower. You can now set up your forex order for the currency pair that you wish to speculate on. EToro is also a great option if you are planning to diversify into other asset classes. This is because eToro also offers stocks, ETFs, indices, commodities, and cryptocurrencies.

Leave a comment