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What it Means to be a Forex Day Trader

By DavidWilson Subscribe to RSS | February 17th 2012 | Views:
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One of the most exiting aspects of being a trader is being a Forex day trader. As a Forex day trader you’re involved in the most heavily traded market in the world. They are open twenty four hours per day and every day except weekends. They are volatile at different times of the day based time zone. For example, at 5:00am New York time, the forex markets are usually volatile because London, a major trading center, is in the middle of their trading day. For Americans, the early morning is the best time to trade Forex markets for this reason. There are three main geographical markets that trade the forex: European, Asian, and American. Asian markets are open in the late evening and early morning in America. The European session is open for most of the morning in American time zones.

As a Forex day trader you must realize the Forex market is different than other market in many ways. For one thing there is no commission when trading forex. This is convenient for traders because there is no cost per trade. Forex markets are occasionally difficult to trade because some of the markets have a wide bid/ask spread. A bid/ask spread is the difference between what people are willing to pay for the instrument and what people are willing to sell it for. The bid/ask spread makes trading some markets more difficult because in order to sell a long position, the ask price must reach your price, which can be very different than the bid.

When trading currency pairs in the Forex market, trades are placed on the strength of one currency versus that of another currency. The market moves up and down depending on each of the currency’s strength relative to the other in the pair. To explain how the GBPUSD works, for example, it can be thought of as “the number of US Dollars per British Pound.”

In the Forex markets, there are many different pairs that can be traded. The most actively traded pairs are the euro/dollar (EURUSD), the dollar/yen (USDJPY), and the euro/pound (EURGPB). High volume usually correlates to high volatility, but it also means that the size of your position doesn’t affect the market as much. If you held a position of 1,000,000 units, some markets could be affected by the size of the sell order if it is placed at only one price. If the market is heavily traded, then there are likely many people with limit orders similar to this order at the same price. This order, even though it is relatively large, will be essentially un-noticed by other traders because the volume traded is so high.

These are some of the basics to being a forex day trader. I would suggest opening a demo account and learning how about order placement, sizing, and bid/ask spread first before getting into strategies and trading with real money.

DavidWilson - About Author:
If you would like to learn more about becoming a Forex day trader you can visit http://www.tradethemarkets.com/freevideonewsletter where you can register for a free video newsletter.

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