How to Day Trade Currencies

The currency/foreign exchange market is the largest financial market in the world. It is where international banks post bids for foreign currencies. Unlike the stock market, the currency exchange is open 24 hours a day. Currency trading was once the domain of large, international banks, but thanks to advancements in technology and the advent of the Internet, individual day traders now have access to the foreign exchange market.

Difficulty:

Moderately Challenging

Instructions

Things You'll Need

• Currency market lingo
• Currency trading software
• Forex mini account

1. Open a Forex mini account (an account for traders new to the Forex market who do not have the funds to open a standard account). A Forex mini account can be opened with a relatively small fee. In a mini account, the lot sizes that are traded are 10,000 of the base currency, instead of the 100,000 traded in a standard Forex account.

2. Keep up on current affairs. Read newspapers and watch the cable news channels. Things that can influence changes in the currency market include the rise and fall of interest rates, bank activities and import/export and political/economic factors.

3. Adjust your sleep/wake patterns. Since the currency market is open 24 hours a day, you must be informed and available to trade at any time.

4. Learn the currency market lingo. Know, for example, that PIP stands for "price interest point" and signifies the smallest fluctuation in the price of a currency.

5. Consider attending a day trading seminar or training session to learn how to use technical analysis to determine when to buy or sell a particular currency.

6. Download free software. Good currency trading software can be downloaded for free and means that you won't have to deal with an online broker.

7. Find an online currency broker. Do some research before trusting your assets to anyone. Look for a broker who does not trade against his clients and who offers a flexible margin and 24-hour support.

Tips & Warnings

• Day trading in currencies is more accessible to new day traders than trading in the stock market. Day traders who trade stocks are required to maintain expensive capital accounts. There is no minimum for day trading currencies. Anyone with even a small investment can enter the market.

• Trading currencies is simpler than trading stocks. There are only a few major currencies to be concerned with, while there are tens of thousands of stocks.

• Currency traders have a 50-to-1 leverage. This means with only $1,000 in your Forex account, you can trade $50,000 worth of currencies. Using leverage can be a good and a bad thing. Your losses will be multiplied as well as your gains. You will have to cover your losses.