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Daily Forex

By: EconomyWatch Date: 23 July 2009

The core Content Team our economy, industry, investing and personal finance reference articles.

Daily forex trading, or day trading, is the buying and selling of a currency during the course of a single trading day. This strategy is used expensively by forex traders aiming at capitalizing on very small price increments by using very high leverage.

The most important thing for a daily forex trader or a day trader is to have a strategy. The most common strategies are:

Arbitrage: This is the almost instantaneously buying and selling of a currency to make profits. Day traders usually follow the trend. So, when prices are rising, they buy a currency and look out for the next increase in price to sell it. This strategy requires a trader to follow the forex market trends very closely. Though arbitrage exists because of the inefficiency of the market, it helps in maintaining the fair price of a currency.
Swing trading: This is similar to arbitrage, differing most significantly in terms of the duration for which a currency is held. This strategy involves buying a currency with the expectation of a price hike and selling it off when prices are at or near that peak. This requires a lot of research and experience to be effective.
Trading on news: This involves buying and selling currencies immediately before or after the announcement of some key economic news. When such news is announced, there are fluctuations in the forex market, giving rise to opportunities for making profits.

Daily forex trading is definitely not for beginners. This is because it requires three critical things:

Forex market knowledge: Day traders are typically those who have an in-depth understanding of the functioning of forex markets. Without this, risking a lot of money would be unwise.
Forex market experience: Education can not replace practical knowledge. This is because the forex market is greatly influenced by emotions and instincts. A good day trader would understand the emotions prevailing in the market, while being able to control his own.
Large capital requirement: The basic concept of day trading is betting a large sum of money to make profits from small price changes. Since the risk is high, day traders use risk capital, or money that they can afford to lose.