The Basics of Forex Day Trading

Forex day trading has become the rule rather than the exception these days. Many traders are looking to grab quick profits early in the trading session and go on with the rest of their day.

To day trade Forex you must simply open and close a trade all within the same day. If you ask why people would want to day trade Forex you would hear a variety of reasons.

Many traders feel that they can reduce their risk by not having trading positions open overnight. These traders feel that there is the potential that some event may take place which will have a negative affect on their trading position. If they close out all their trades by the end of the day then they can eliminate their exposure to overnight events or news of any kind.

The popularity of day trading and other short-term trading methods increased as real-time Forex data and faster, more efficient online trading platforms became available. Day trading has also grown to be a controversial topic. Many more conservative traders consider it to be nothing more than gambling while other claim that it’s the greatest thing since sliced bread. Whatever opinions people have about day trading there are traders who do it successfully.

Here are a few things to keep in mind if you are planning on day trading:

Transaction Costs – The transaction costs in Forex trading is the size of the spread. The spread is how your Forex broker gets paid. Quite logically, the smaller the spread the better it is for the trader. You may ask, “What does this have to with Forex day trading?”. Good question. Since day traders typically trade more frequently it stand to reason that their transactions cost will start to add up. Here’s a quick example:

Longer-Term Trader – – Spread = 3 pips X 6 trades per year = 18 pips per year transaction costs

Day Trader – – Spread = 3 pips X 150 trades per year = 450 pips per year transaction costs

If everything else is equal for the above 2 traders it’s easy to see that the day trader’s transaction costs are a much larger percentage of their profits.

The moral of the story here is that if you do day trade make certain that your Forex trading system will yield a profit AFTER all transactions costs.

Forex day trading can be incredibly profitable. As long as your trading method can make a profit after transaction cost over and over again you will be well on your way to being a successful Forex day trader.

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