Foreign exchange, sometimes known as “forex,” is the exchange of currencies between buyers and sellers in a network at a specified price. It is a method used by people, businesses, and central banks to exchange one currency for another.
The forex market, which represents every major currency and is open 24 hours a day, five days a week, is the biggest and most transparent market in the world. Apart from its practical uses, you can also use forex trading to make a profit.
However, to make a profit in forex trading, it takes a good understanding of how the system works while picking a trading platform.
As we explain how forex trading works and get you started with one of the forex trading types known as day trading, familiarise yourself with our list of forex trading platforms to ensure a good starting point.
How Forex Trading Works
Studies show that in 2019, the UK’s forex market averaged a daily currency turnover of close to 3.6 trillion. This might get you wondering how exchanging currencies work.
Basically, forex involves purchasing foreign currencies and selling them when other currencies strengthen or weaken. As currency rates fluctuate constantly, there are always opportunities to profit by investing in a currency that skyrockets in the foreign exchange market.
This volatility, which increases both the danger and the potential for huge returns, makes forex trading so tempting to traders.
What Is Forex Day Trading?
Currency day trading is the practice of purchasing and selling currencies during a single trading day. Day traders buy and sell currency pairs daily to profit from minor market fluctuations.
The average day trader in forex will choose a time range to work in and one or more exchange rates to trade within that time frame.
You’ll have to incorporate a properly specified and objective investment strategy into your entire trading plan, test it, and then adhere to it almost religiously to produce lucrative outcomes.
How to Day Trade: Forex Day Trading Steps for Beginners
We’ve seen what forex day trading is and how the forex market works. Now let’s move on to how you can get started with forex day trading.
Choose a Good Forex Trading Platform
A reputable trading platform is a must to get started with forex trading. You must choose a forex broker who can meet your needs. Since day traders are typically fairly engaged in the market, you should ideally choose a platform with narrow dealing spreads to minimise costs.
Make a Trading Strategy
The trading mentality you have and how quickly you can recover from losing deals will influence the trading approach you use. A trading personality suited to day trading would be one that can respond swiftly and decisively when signs are received.
Once you’ve chosen a technique, you can develop a trading plan and practice using a demo account.
Decide on Your Trading Plan
Last but not least, you must choose the times of day you will trade as a day trader in forex, as this is a crucial step in developing your entire trading strategy.
Your day trading plan must also include the series of basic data or technical indicators you intend to trade on, as well as the position-seizing strategy that defines the level of risk you intend to handle with each trade.