What is day-trading in forex?

There are different strategies that forex traders can employ to maximize their trading profits and day-trading is arguably the most popular. This strategy mainly focuses on intraday movements as traders aim to hold short-term positions in order to avoid paying overnight trade fees or swaps.

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What is day-trading in forex?

Since the forex market is online throughout the week, traders can choose to hold their positions open for as long they wish. If the asset they are trading doesn’t return a profit in the short-term, they can just let the trade open for days, weeks or even months until the market moves in their favor.

However, in order to do so, you need to have enough funds in your account to sustain any potential losses and sometimes this can become increasingly cost-prohibitive, due to the fact that holding positions overnight, you are liable to pay a rollover or swap fee.

These fees are based on the difference between the interest rates of the currencies you have chosen to trade, but if the currency you are buying or selling ends up having a stronger interest rate than its counterpart, you may end up profit from the differential instead. Therefore, it’s good to know that sometimes it can go both ways.  

 

The benefits of day-trading the markets

Day-trading implies that you close all positions at the end of the daily trading session and you are therefore not liable to pay or receive interest from swaps.

As long as the market you have chosen to trade is liquid and volatile enough, short-term trading can prove to be substantially profitable, especially since you can employ the use of leverage to command larger positions and magnify your profits.

If you want to focus on intraday strategies, the major currency pairs are considered the most favourable due to the high liquidity and tight spreads they offer.

Major currency pairs such as the EUR/USD and GBP/USD can fluctuate substantially during the day and are therefore high priority for day-traders and scalpers in the market.

It’s crucial that you are comfortable with the market you decide to trade and spend some time learning when trading volume is at its peak.

Major currency pairs typically tend to favour the New York session and action picks up during the period when New York and London exchanges are both online simultaneously and this is widely considered the best time to trade the forex market.

 

The disadvantages of day-trading

While day-trading is immensely popular, it’s important to note that it also carrier higher risk exposure than long-term trading strategies and it’s not suited for impatient traders.

In order to take advantage of the intraday price movements, traders need to constantly keep watch of market developments and make use of high leverage to maximize their profits.

Where long-term traders that focus on higher timeframes don’t worry themselves over small pip movements, day traders need to adhere to strict risk management rules to ensure that they don’t incur too much of a loss on a single trade.

 

Day-trading tips

Managing risk is arguably the most important aspect of trading any financial instrument and this is particularly true for day-trading as high-frequency trading can lead to long losing streaks and blown accounts especially when paired with excessive use of leverage.

Typically, regardless of your trading strategy, you should aim to trade based on a risk-to-reward ratio i.e. set your stop-loss orders close to 2% of your total invested capital.

This is a good way to ensure that you limit losses in case the market starts moving rapidly against your position, but limiting your position size or how many lots you trade is highly important as well.

Depending on your invested capital, even one trading lot may seem excessive since, in terms of forex trading, it’s equal to 100,000 currency units. Therefore, you may consider opening smaller positions until you are comfortable with riskier and potentially more rewarding trades.

If you want to see if you have what it takes and test your skills in day-trading the markets without risking any money, you can simply open a free demo trading account.

Demo forex trading accounts come with a substantial deposit of $50,000 in virtual funds, which you can use to practice your strategy, market analysis and risk management rules completely risk-free.

 

Want to start day-trading today?

Register now!

 

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