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Day Trading Explained

What is day trading?

Day trading is one way of performing foreign exchange trading. Usually day trading deals are opened and closed on the same day – you can make as many trades a day as you want. It is your decision.

It is possible for a day trading deal to last longer than one day. When this happens, the deal is automatically renewed at 22:00 GMT each night until the deal closes. Upon renewal you will be charged a fee for rolling the deal for an extra 24 hours. This fee will be collected once a day when the deal is renewed. The fee will be collected form your Free Balance in your trading account, and if there is no sufficient free balance then your credit card will be debited. If there is no credit card, the next time you have a free balance and execute a withdrawal from your account, the amount owed due to non-payments of the rolling fee will be deducted from the amount you have withdrawn.

Day trading is becoming more popular now that more people use the Internet. It is one of the Forex instruments (or products) offered by easy-forex®.

Be sure to also read Leveraged Trading after this article.

Day trading with easy-forex®

A day trading deal with easy-forex® involves four main steps:

  1. Decide to perform a Forex deal
  2. Decide the deal you want to make and build it in your online account
  3. Monitor the deal in your account
  4. Close the deal

Here is an example using the four steps in detail:

Step 1: You decide to perform a Forex deal.
You believe USD will rise in value because you have followed the market and you think a rise is most possible in the near future. You decide to buy USD before the rise and sell after the rise. This way you will make a profit if indeed USD rises.

Step 2: Decide the deal you want to make
You choose the currency pair to trade. You might choose to trade EUR/USD, which means you buy or sell USD against the EUR. Once the USD increases to the level you expect, you close the deal. You then get more EUR for the amount of USD you bought.

Here is an example, putting aside the spread issue: assuming the rate for EUR/USD is 1.2600. This would mean 1 EUR costs 1.2600 USD. It also means you receive 1.2600 USD if you sell 1 euro. If EUR strengthens (i.e. the rate increases), and goes to 1.2700, you will pay 1.2700 USD to buy one euro (USD is now worth less), so selling back the EUR at 1.2700 in exchange for USD again will get you 1.2700 USD at a profit of 0.0100 USD. In this example, assuming you purchased 10,000 EUR, you have made 100 USD profit. Buying 10,000 EUR only requires 100 USD security deposit if you are using a 1:100 leverage. So in this hypothetical case, by investing 100 USD you made 100 USD profit. However, if the EUR would have decreased to 1.2500, you would have lost your 100 USD security deposit.

In real life however, the market maker is charging a spread, which is the difference between the bid and ask price at any given moment. However, the idea is that the change in the exchange rate exceeds the value of the spread (typically 3-5 pips) which still enables a profit to the investor.

Next you decide the amount you want to trade. You do not have to buy the whole amount because you can use leveraged trading. The most common leverage is 1:100.

Then you choose how much you want to risk. This is your investment.

You can set the Stop-Loss rate next. This is the rate at which your deal will automatically close if it goes against what you expect. While your deal is still open, you can change this rate at any time. At easy-forex® we require you to set a Stop-Loss rate to ensure you do not lose more than you are willing to do. Do not to risk more than you can accept to lose.

easy-forex® offers a unique Freeze rate feature. A Freeze will fix a rate for a short time if you need a few seconds to think about your position. It gives you more time to accept or refuse the deal on offer.

When you have made these decisions, you then press the Accept button and your deal is open.

Step 3: Monitor your account
Logging into your online account at easy-forex®, you can look at how your account is progressing 24 hours a day, seven days a week. This gives you the chance to open and close deals or to change your deal whenever you want.

Step 4: Close the deal
You can choose to close the deal when you decide. If you have set a Stop-Loss rate and the deal reaches that rate, it automatically closes. Some traders find Stop-Loss rates a good way to make sure they do not lose more than the limit they set. The deal can also close automatically if you set a Take Profit rate. You are not required to set a Take Profit rate but it does mean that you are freed from constantly monitoring your positions.

Limit orders

easy-forex® offers Limit orders as an additional service. This is where you nominate a rate at which you want to open a deal. When and if this rate occurs in the market, your ‘reserved’ deal is automatically opened. This saves you watching the market every minute to see whether the rate you want happens.

easy-forex® makes it easy for you to choose the rate you want, watch your account, and open and close your deals no matter where you are in the world. All you need is the Internet and an account with easy-forex®.