The global forex market is huge. Trillions of dollars are traded on the foreign currency markets every day, by all sorts of traders, from individual investors to global multi-national corporations and international banks.
What is Forex Day Trading?
Simply put, forex day trading is where you open and close a position on the same day. So for example, you might buy some Japanese Yen against the US Dollar in the morning and sell the same amount in the afternoon to square off your position. If the price has moved in your favor, you have made a profit. If it has moved against you, you have made a loss. Simple!
Why is Day Trading So Popular?
Photo by publik16Day Trading is actually one of the most popular forms of forex trading, for the main reason that it is seen as being less risky than other forms of trading. While there are good arguments to support this theory (e.g. because your position is closed out at the end of the day, no risk is carried overnight, so you can’t suffer from an adverse movement while you are away from the markets, tucked up in bed!), it should be stated that day trading is certainly not without risk. Many people have lost a lot of money through day trading. So proceed with caution!
Commissions and Fees
One of the downsides of day trading versus long-term position holding is that the frequency of trading brings with it a higher amount of commissions and trading fees/expenses. Holding a position over the long term does not incur any additional cost other than the commissions & fees on the original trade. Whereas if your dipping in and out of the markets multiple times per day, every time you trade you will be on the wrong side of the broker’s spread and if you are paying commissions or fees on a per trade basis, those costs can mount up and eat into any small profits you are making.
In conclusion, forex day trading is not for everyone, but it can work well if you have the day trading mindset.
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