What is Day Trading?
Day trading is a subset of Forex trading. Forex trading, also known as foreign exchange trading, is the process of trading various types of currency.
A Forex trader uses indicators to decide whether or not the market will shift in favor of a specific type of currency and then buy accordingly. If they make their estimates correctly, they can end up making large sums of money, depending on the amount they invest and the leverage that they use.
This can be a long process. Some people will make an investment (buy a type of currency) and then keep that currency for months or even years at a time until the market does what they want.
This commitment can be overwhelming, especially for new traders, so many people choose to do what is known as day trading. With Forex day trading, all trades are made within a trading day.
People often prefer day trading to regular Forex as they consider it to have a lower risk level.
This is not to say there is no risk, or even only a small amount. It is just less than regular Forex trading because you are only holding onto the securities for a day.
We have dedicated a complete course to Day trading with Expert Advisors. In this course, we will teach you how to trade with 10 Robots simultaniously:
Because the market probably will not shift that much in one day, you probably will not lose that much money even if a trade does not go your way. However, that same logic can prevent you from making large sums of profit if your trade does not perform well quickly.
Terms to Know while Day Trading
There are some general terms that you need to know before you get started with day trading. These are terms you will hear both in your research/any education programs you do as well as while you are actually completing the Forex day trading for beginners.
While they are not all the terms you may come across, it will give you a base to start with. It is important to understand these basics before you get started with any actual trading.
When a seller lists security, they will list it under an ask price, also known as an offer price. This is the lowest amount they plan to take from traders interested in it.
If only one person shows interest, this is the price it will often go for; however, with multiple buyers, it can go up. (See bid price.) With other types of buying/selling, buyers can often haggle a person down to a lower price, that is not usually the case for day trading.
This is the highest amount that a buyer is willing to pay/trade in order to get a certain currency/security.
The buyer or trader with the highest bid price will almost always be the one to secure the trade. In Forex trading (including day trading for beginners), one trader can play the role of the buyer and seller simultaneously, which can make the bid price and the asking price interchangeable.
A limit order is a limit that you pay to ensure that you buy and sell at a certain price based on the market.
Setting a limit order helps a trader ensure that they make as much money as they can, or at least not lose very much. If you are acting as the buyer, it is the highest price you will pay. If you are acting as the seller, it is the lowest price you will take. You may have both types set at one time.
A margin account is an account that you can agree to set up with a brokerage.
With a margin account, you will be able to trade with a currency that you do not personally have but is provided to you by a broker based on the money you can provide. The amount that you can control with every unit of currency you provide is known as leverage.
Some brokers give every trader the same maximum leverage option, while others will give you more if you prove that you have experience and make good trades.
Intraday literally means within the day because it represents something that happens within a single trading day. Usually, a person will use it when they are talking about a price change or changes that happen in a single day.
As a day trader, you will talk mostly about intraday occurrences.
When you secure a trade, you will want to turn it into cash of some sort. This takes time. How long it takes depends on various factors such as the broker, the kind of payout you are looking for, etc. The time it takes for a security to be converted is known as liquidity.
You may also hear the term used in reference to a trader’s capability to transfer a security/securities.
This is a common term in day trading.
A market order is an order that a trader may place if they want to buy or sell securities at the best possible market price at the time the order is placed.
All traders use market indicators to make their decisions when trading. These are indicators that show a trader in what direction the market is moving.
Indicators can be shown in technical data and can also be a feeling that the public seems to hold. Understanding market indicators is key to making profitable trades. Remember, indicators are not foolproof, and predictions can be wrong.
Day traders will often use the strategy known as scalping. When someone is scalping, they make lots of trades, each with small amounts of profit.
When a person makes lots of these trades, they can end up with a substantial amount of profit, despite the small amount gained by individual trades.
Long Trading (Buy)
Long selling is another trading strategy. With this strategy, a trader buys large quantities of securities in hopes that the market will result in the securities gaining value.
If they do, they can sell the large quantity for more than they bought it for and make a profit.
This is another trading strategy where a trader only sells securities that they borrow from a broker. Then they repurchase the securities at a lower price point, give the securities back to the broker, and keep the difference.
If the market results in them having to buy back the securities at a higher price point, the trader loses money.
Benefits of Day Trading
With Forex day trading you do not have to worry about any overnight risk.
Market prices fluctuate the most overnight, up to ten percent. That means while someone is sleeping, they risk losing a lot of money. With day trading, you avoid this risk completely by both buying and selling your assets in a single day. Of course, this also means you may miss out on a substantial overnight increase in profit.
With any kind of trading, education is important to ensure that you make good choices.
However, with day trading, you can learn a lot about what you need to go as you go. As you trade, you will gradually learn more and more trading patterns and trading strategies.
You will also figure out which one(s) work best for you. Remember, it does take time to figure out what you are doing and become truly profitable.
One benefit of all types of Forex trading, including day trading, is that it offers people the chance to work from anywhere, whether that be at home, on vacation, etc.
With education, anyone can learn to do day trading, either as an added bonus to their regular income or as their only income. It also does not have to be overly time-consuming if you learn how to trade with robots in automated Forex trading.
With trading, you can use what is known as leverage to increase your investment beyond the money that you can actually offer up.
You should not use leverage, or at least not much of it until you have some experience. But when you do, leverage allows you to make a much bigger profit in the time that day trading provides you with.
There are lots of brokers out there that you can use to complete your day trading. You will need to figure out which one works best for you, and it may be different than other traders that you know.
Before you begin to compare brokers, you will need to figure out your personal trading style. Consider how often you trade, what time(s) you want to trade, how much money you wish to use, and what tools you want to have access to.
There a few main things that you want to consider before choosing a broker.
- Cost. There are many things that are involved in the cost. You want to consider what their commission is. A lower commission will result in a higher profit for you. You also want to consider what their minimum deposit requirement is, what their margin rates are, if they have a trading limit, etc. Figuring out all the different cost requirements and investment limits will help you figure out if a broker is right for you.
- Features. You want to consider what features are most important to you. Consider whether a broker offers tools for research and analysis, whether or not their platform is user friendly, is there a mobile platform and is their trading platform quick in execution.
- Customer service. You are trusting a broker with your money, so it is important that they have good customer service. If something goes wrong, you must be sure that you can get in contact with them. Some brokers are hard to contact for issues, while others offer full-time support with extremely short wait times.
Day Trading Strategies
With time, you will begin to develop your own trading strategy, but there a few main types.
Above, you have already read about scalping, long trading, and short selling. Those are the three main types that you use in day trading. There are other Forex trading strategies, such as breakout, reversal, and momentum, but those are primarily long-term trading strategies.
Researching those three strategies and more, even if they are not initially designed for day trading for beginners, can help your figure out your personal trading strategy.
Learning how to correctly use trading patterns will help you make profitable trades. The market tends to repeat cycles over and over again. If you figure out what these key repetitions are, you will know when the best times to buy and sell are.
First, you must learn how to read a market chart, and then you can learn about the patterns that you need to look out for. The most distinguishing factors when it comes to trading are breakouts and reversals. A breakout is when the price moves past a critical level, and a reversal is when the trend changes direction.
Robots and Day Trading
Robots are commonly used with regular or long-term Forex trading, but they can also be used in day trading for beginners. Trading robots, also known as Expert Advisors or EAs, allow you to spend less time in front of the computer and more time doing other things you are interested in.
Trading robots are essentially code that makes the trades for you based on parameters you set/the strategy that you input. This can sound daunting, especially if you do not know how to code. There are online companies that will allow you to input a strategy and then will create a robot for you to download and use.
Day trading can be done by anyone as long as they have the education that they need to make profitable trades. This education can be grasped by reading articles such as this one and by taking an online course for day trading for beginners.
There are many options for online courses available to you, some specifically for Forex trading. You will learn strategies, patterns, and the basics of foreign exchange trading. You can even learn how to use robots to make the process that much simpler. After you have an education, you can begin making money through Forex trading.
What is Forex Trading?
Forex trading is the process of buying and selling various types of currencies. The currencies are traded against each other as exchange rate pairs.
What is Day Trading?
Day trading is part of Forex trading which consists of buying and selling of a security within a single trading day.