Forex day trading has gained tremendously in popularity. It’s easy to see why as the access to data and sophisticated Forex trading software make it possible for the average trader to view and analyze the market in real time. In day trading, a trade is held for no longer than one trading day and that is it. Day trading may or may not be right for you. Let’s explore some of the pros and cons.
One of the things that has made Forex day trading so popular is that it plays into the need that many traders have for instant gratification. In today’s technology-driven society an increasing number of people seem to want things not just today, but yesterday!
What day trading gives the trader that other forms of trading do not is extremely rapid feedback. A trade may last from a short as one minute to any number of hours within the trading day. This means that a day trader can experience a profitable trade before they finish their morning coffee. Many traders find this rapid feedback extremely gratifying.
Day trading also plays into the hands of many beginning Forex traders as the capital requirements for daytrading only may be different than the standard financial requirements of some brokers. This reduces the barrier to entry and opens the door for many more traders to become involved in Forex.
You may have seen some of the government notices that attempt to warn people against the riskiness and dangers of day trading. For the vast majority of traders these warnings should not be overlooked. Successful day trading requires experience and there is no reason that any beginning trader should not prepare themselves before venturing into Forex day trading. Are there successful Forex day traders? Of course there are. They’re even some who would become wealthy through day trading, but this is the exception and not the rule.
Another important point keep in mind about Forex day trading is that of transaction costs. It should go without saying that when you increase the frequency of trades that you also increase your total transaction costs. Day traders need to be especially mindful of this especially since they are looking to gain a much smaller profit than longer-term traders. This makes perfect sense as the range of prices during a single trading day is almost always smaller than the range of prices during the trading week, month, or year.
Another point to consider is that there is a good deal of precision required in day trading. This is because of the size of the profits taken. If a Forex day trader is seeking to gain a five pip profit per contract they cannot afford to get in five pips to late. A long-term Forex trader is more interested in profits in the hundres or thousands of pips does not need to be nearly as precise with their entry.
The information provided was in no way meant to discourage you from pursuing Forex day trading. It should serve as a warning, however, that it would be foolish to enter into the day trading arena without being properly prepared. You will not become a Forex day trading expert overnight so give yourself this opportunity to learn how to day trade properly. As you are learning grab yourself a Forex demo account so that you can practice trading without any actual risk. Also remember to keep meticulous records so that you can learn and grow from both your profits as well as your losses.