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Understanding Forex Day Trading

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  • Understanding Forex Day Trading

    Forex Day trading is system of trading on the foreign currency exchange market, where the trader begins and ends all trades on the same trading day. The trades are typically completed quickly, with the trader profiting from the changes in a currency exchange rate from time he buys and sells.

    Depending on the method or system that the trader uses to pick the trades, it can be very complicated. Currency exchange rates fluctuate over the course of the day. Multiple factors change the rate many times per day. Some of those factors are other traders, world news and what current rumors. Day trading in the foreign currency market is affected by rumors, current events and news stories more than other types of trading in stocks, currency and future markets. Traders can maximize their profits by paying close attention to the current news and how it is affecting the currency exchange rates.

    The foreign exchange currency market, also referred to as Forex, is the most liquid market in the world. Each day, the trading volume on Forex exceeds $1,300,000,000,000 U.S. dollars are. Forex is the world's largest market, partly due to the practice of day trading. Day trading differs from other types of trading in the duration between buying and selling the stocks, or in this case currency. A day trader sells everything by the close of the day's market. No currency is held over to be traded the next day. Whatever the trader buys must be sold by the end of the day or vice versa.

    In actuality, the market does not have an end of the day. It is open 24 hours, there from Sunday afternoon to Friday afternoon. So the beginning and end of the trading day is defined by the trader, and not the market itself.

    One thing to keep in mind when day trading is that the more frequently you trade the higher your transaction costs will be. This is why it is important for Forex day traders to use trading systems which can produce enough profit to overcome all transaction costs.

    It is believed that the difference between a day trader and an investor is the duration between buying and selling. That definition is simplistic. The major difference is in the goals and perspective of the traders. An investor buys a stock believing it will increase in value over time, and expecting to hold for a long time so that increase can happen. A day trader buys and sells in anticipation of minor, short-term fluctuations in the currency market. Forex trading is done in large lots of 100,000. A small fluctuation in the exchange rate might not seem significant, however, it can be very profitable, or costly, when multiplied by 100,000.

    Day trading on the foreign currency exchange has potential risks and rewards just like any other type of trading. Successful traders get to know the market and understand the ramifications of their trades. Traders who begin trading without an understanding of the fundamental and technical workings of the Forex market are destined to fail, just as they would in any business. High potential profit comes with high risk. Traders must be educated and prepared before they engage such the volatile, fluctuating market of day trading.
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