Forex day trading is one of those occupations that falls into the category of ‘for a “special” type of trader.’ The forex market isn’t a volatile trading forum but the sheer magnitude of cash that changes hands, over $4 trillion a day by some accounts, make even the smallest price change into a potentially amazing or devastating outcome.
Most forex day trading is done with the help of brokerage house leveraging. This makes it possible for traders with limited amounts of funds (say less than $50,000) to make bids for lots up to 500 times greater than their liquid value. So with $50,000 a trader could leverage an amount up to $25 million based on his track record. With units of currency generally sold in blocks of at least 10,000 units, this would allow a trader to take a bid on 2500 blocks instead of 5.
Why is this important? Well, if the change in forex rate is a single pip (1/10000th of a unit) the trader sees a monetary gain of $2500 dollars instead of $5. Keep in mind, if the pip value goes the other way and the currency loses value, then the trader is on the hook for the entire $2500 instead of $5.
The key to forex day trading is to focus on currencies that are on a moderate up trend. Setting stop loss orders and futures bids based on potential price bids will allow a day trader to forecast for the best possible buys and sells during a 24 hour period. As most day traders only secure possible trades for this one 24-hour period, they must be renewed the following business day.
By carefully studying the forex market and following current trends a forex day trader can make enormous amounts of cash in a relatively short period of time.