Day trading has been traditionally associated with stock market investing, but as the internet grows in popularity, more and more investors have begun day trading on the foreign exchange, or forex market. Since the forex market is open all day and night for six days a week, investors are able to execute trades at any time, but those who want to make a regular career of investing may decide to place trades primarily during the day.

Deciding When to Trade

Since the foreign exchange market is open during the day and night, some traders may choose to perform the bulk of their trades during the hours when the currency they trade heaviest is most active. For example, if a trader focuses on the British Pound, he may choose to schedule his trading around the hours that the British stock market is open, since this is when the pound’s value may fluctuate the most.

Navigating the Three Areas of the Forex Market

Fx trading is done via three separate sectors of the currency market: the spot market, the forwards market, and the futures market. The type of investing a trader wishes to pursue dictates the market to which he directs his attention. The spot market is used for buying and selling currency, the forwards market is used for trading over-the-counter contracts, and the futures market is used for buying and selling exchange contracts.

Making a Career Out of Investing

Forex demo accounts are a great way for investors to break into the world of foreign exchange day trading. Once traders are familiar with the market and are regularly placing successful trades, they may desire to make investing their primary career. Before doing so, it is wise for investors to get advice from a qualified broker about making the transition to professional forex day trading.

There are numerous Forex trading platforms available for both newcomers and experienced traders. In recent years, the internet has increasingly dominated the sector. 1996 saw the introduction of retail Forex trading, when several brokers, identifying that they not have the necessary tools available to them, launched their own customised platforms. Software companies attempted introduce a second wave of platforms in early 2000; however they were not as successful the earlier products. The majority of retail brokers continued with first wave platforms, which they continued to develop. The result is the range of platforms available on the market today, which have a strong emphasis on user interface.

Retail Forex trading is a significant segment of the foreign exchange market and has been predicted to represent 5% of the entire market in the near future. This percentage is consistently increasing, due largely to the rise of electronic trading. The electronic Forex trading platform has enabled users to trade from any location, at any time, with an almost instant execution of orders. This is in stark contrast to traditional floor trading and telephone trading methods. Along with accessibility and speed, electronic trading has also provided a more comprehensive service. Recently added facilities include live streaming of market prices, news feeds, charting packages and account management.

Additional trading platforms, such as the ‘Peer to Peer’ trading systems established in the South Pacific, which are monitored by government agencies. More recently, banks have started to expand into the retail Forex trading platform, offering the service to individual traders and money managers.

One of the most important tools in a Forex trader’s arsenal is a great Forex broker. With all the options available, you must know what questions to ask to ensure you know your broker, because their tools and guidance can help lead you to becoming a better trader.

Experience

Ask about your broker’s experience. You do not want someone unfamiliar with the market executing your orders. Discuss the Forex brokerage and the length of time they have been in business. Larger brokerages are often able to offer their traders better quotes than smaller ones.

Who Quotes And Executes?

Ask whether or not your Forex brokerage uses a dealing desk or no dealing desk system. Forex brokers can create pricing and execute your orders themselves. They also have the option of letting banks execute your orders, which is referred to as ‘no dealing desk’. The second option often means more competitive rates and fewer restrictions on when you can trade.

Are You Supported?

With a 24-hour market, you need 24-hour support. Ask about the availability of customer support. Should you have trouble with the Forex trading platform, you need to know someone will be there to help you. Live support is always better than automated support. Some brokers offer live chat, so you receive support without ever leaving your computer.

Commissions and Fees

Many brokers work on commission, meaning they earn a set percentage of your profits, while others work based on a set fee per trade. Ask your broker about all commissions and fees, so you know exactly what to expect.

The largest financial market for trading worldwide, the Foreign Exchange Market is more commonly known as Forex. Due to its ease of access the Forex market is increasingly favoured over the equity market. Thanks to the growth of the internet, in recent years, it has become increasingly easy for individuals to start trading without having to make significant financial investment, as trading can be carried on with relatively small amounts of money. The Forex market is open, with the exception of weekends, 24 hours a day, so access to trade is high. As a result, Forex has become a popular choice with sophisticated investors.

Currency is always quoted in pairs on the Forex trading system, with acronyms being used to represent each currency; for example, a Euro/Pound currency pair would be represented EUR/GBP. A typical trade might involve purchasing a quantity of the counter currency; shown second, with the base currency; shown first. This would be considered to be a spot trade.

Trading is based on the value of the currency and the exchange rate is based on the fluctuations in the market. Factors that can influence these fluctuations might include industrial production, inflation and world events. Exchange rates indicate the value of one currency in relation to another, which form the currency pair; these two currencies also indicate the exchange rate. Profit is made by correctly predicting an increase in currency value and exchange rate.

It is relatively easy to start as a forex trader, particularly with the ease of internet access. Traders can work anywhere in the world with minimal start-up costs.

Before launching into the role of a forex trader, spending time studying the intricacies of the forex market, the risks associated with it and understanding psychological factors, is important.

There is a wealth of material available on the internet with online trading companies featuring numerous forex news articles, forex charts, forex forums and references to other helpful material. Forex demos (demonstration accounts) also allow a potential forex trader to simulate their trades with an online program. Using these tools allows a trader to assess their decision making capacity before spending a penny. Professionals also use these forex demos to assess a new strategy.

Once you understand what impacts currency movement and have assessed your own appetite for risk you may feel that you are ready to begin trading. You can sign up with an online forex trading company and begin trading with real money.

Forex currencies are traded in pairs and it might be worth considering limiting yourself to a single pair. By limiting your trading to just two currencies, you will be able to study and absorb more of the massive amount of information available.

Note however, that this is a high risk business and you should never invest any more capital than you can afford to lose. If you need help, consult a specialist financial adviser.

There are so many Forex brokers available that selecting one can sometimes feel too overwhelming. However by considering a few important factors, it is much easier to choose between brokers.

Different brokers offer different leverages, which is the amount they are prepared to lend a trader. Traders with smaller deposits need a broker offering higher leverage, while investors with larger deposits who wish to lower the risk of trading need a broker with a lower leverage.

Brokers make money from the spread, which is the difference between the buying and selling price of a currency at any one moment. The lower the spread the lower the amount taken by the broker.

Different brokers offer different account types, depending on deposit, different trading platforms and different additional features. Traders need to consider what they need in order to achieve their aims.

Traders should always compare several different brokers against each other and try out demo accounts with several, before choosing to set up a live account with one broker.

When trading in Forex, currencies are traded in pairs. The numerator is known as the base currency and the denominator is known as the ‘quote’ or ‘counter’ currency. Each currency has a three letter acronym (rather like an airport code) and currency pairs are expressed like this: base currency/counter currency. So for example, USD/EUR is a trade in which US dollars are the base currency and Euros the counter.

It is possible for Forex traders to trade in any combination of currencies they wish but in practice most of them stick to a small number of currencies which are considered to be low risk i.e. they are both economically and politically stable. That has been slightly more difficult to predict of late, given the global recession but, on the whole, the currencies have remained fairly stable despite the fluctuations in individual countries’ economic prosperity.

The eight most commonly traded currencies are the Euro (EUR), British Pound (GBP), US Dollar (USD), Swiss Franc (CHF), Japanese Yen (JPY), Australian Dollar (AUD), Canadian Dollar (CAD) and New Zealand Dollar (NZD).

Theoretically, a Forex trading platform will see any combination of these currencies being traded but in practice, there are some trades that are more frequent than others. This makes these currency pairs more liquid and therefore easier to trade. The beginner to Forex trading is probably better off sticking to some very common currency pairing such as EUR/USD or GBP/USD to minimise risk and gain an understanding of how Forex trading platforms work.

New traders must choose a broker who has the right type of Forex trading platform to suit their needs and it can be a bit overwhelming when there are so many to choose from.

To make this task a little easier, new traders can start with finding a broker who uses the most common platform for Forex trading which is called MetaTrader 4. This system is easy to use and has very good charting capability and analysis tools. These include Stochastic analysis and moving averages. MetaTrader 4 is unusual in that it allows users to create custom indicators as well as the standard ones.

MetaTrader 4 also includes automated scripts to open and close positions automatically once the user has selected what variables they wish to use. These expert adviser scripts require very little input once they have been set up.

Those traders who do not use MetaTrader 4 will have designed their own bespoke trading platform and there are a number of alternatives around. You may find some of these more user-friendly than the industry standard, or you may find that you prefer the layout or the range of tools on offer. The only way to identify which trading platform is right for you is to have a list of essential criteria before you start and then try out a range of different ones to see which system you prefer.