Should you invest your money in Forex day trading?

Forex day trading

When traders select the market they wish to trade in, they are searching for the best trading conditions which give them the best opportunities to earn a profit. There are several reasons why there are a vast number of traders around the world who believe that the forex market fits the bill. Visit multibank group

If you’re new to forex trading, you would come across several things that are unique to this market so before you begin to trade online, make sure you are well aware of the fundamentals right. Your learning must include how to trade forex, what are the things you would need to start and what strategies would work for you.

Things to consider before you start trading

1. The currency pairs you choose to trade

Make sure you are familiar with the currency pairs that you are putting your money on. Different pairs would have different responses to the market and you should know how those currency markets are behaving. This would help you stay updated with the markets around the world and how they may affect the currency you’re trading. 

2. Bid-ask spread

The bid-ask spread plays an important role in forex trading. The spread is basically the difference between the lowest sell price and the highest buy price. A higher spread implies lower liquidity while a lower spread indicates more liquidity. 

3. Leverage 

Leverage basically indicates trading on loaned money. It allows you to carry out  big volume trades with considerably low capital. However, a lot of capital when mingled with trading loss could leave you in debt. 

4. Trading strategies

There are a number of forex strategies that you must take into account when trading foreign currencies. From scalping and day trading to trend trading and swing trading, you can choose the one that fits your requirements on the basis of market movements and your trading goals.

5. Trading plan 

Having a trading plan in place is a must as it makes it possible for you to carry out your trades in an objective manner where you make informed decisions. A plan also plays an important role in making sure that you do not lose sight of your goals as you trade.

6. Emotions and biases 

Make sure there is no room for emotions and biases in your trades as these can lead to poor decisions. The forex market is highly volatile and thus the price movements can seem very volatile, and it can be easy to get overwhelmed. 

Benefits of forex trading

  1. A choice to go long or go short

Though it is possible to go short on other markets with the help of derivative products, like CFDs, short selling is key in trading forex. You have to always sell one currency (the quote currency) to buy another (the base currency). The price of a forex pair is calculated by figuring out how much a single unit of the base currency would cost you in the quote currency.

  1. Market hours

The foreign exchange market remains open for trades24 hours a day, five days a week. You can trade foreign currencies from 9 pm Sunday to 10 pm Friday (GMT). The hours are long because forex transactions are completed when the involved parties directly complete the trade over the counter (OTC). There is no central exchange involved in the process. Given the global nature of the forex market, the various active sessions in the forex trading hours can be used for one’s own advantage.

Please note that the forex market’s opening hours change in the months of March, April, October, and November.

  1. High liquidity 

The forex market is famous for being the most liquid market in the world. You would always find buyers and sellers in this market. On a daily basis, more than $5 trillion dollars of currency is converted by individuals, organizations as well as banks with the end goal largely being profit generation. Since the market is extremely liquid, transactions can be carried out quickly and easily. This keeps the transaction costs or spreads quite low. 

  1. Forex volatility

The exceptionally high trade volume means that every day, billions of dollars are traded by the minute and hence the price movements of certain currencies could be very volatile. It is possible to earn large profits by predicting price movements in either direction. Do remember that volatility can be dangerous and could go against you in no time. It is best to cut down your exposure with risk-management tools.

  1. Wide range of currency pairs

With forex trading, you have the chance to trade a number of different currency pairs and predict global events and how they may affect currencies while also being able to assess the relative strength of different economies.

Hedging

Hedging is a method that one can use to cut down the risk of moves that don’t go in your favor by having a number of strategic positions. Despite the excitement which comes with market volatility, hedging is a smart way to cut down the risk which comes with volatility. 

There are a number of different strategies which can be used to hedge forex. A popular one is  hedging with various currency pairs. By selecting forex pairs that are positively linked like GBP/USD and EUR/USD, but by opening positions in opposite directions, your risk can be curtailed. 

Forex Day Trading Strategy

Though there are many aspects of a forex trading – multibank group strategy that can be assessed for profitability in many different ways, how good is a strategy depends on its win rate and risk/reward ratio.

Win Rate

Your win rate indicates how many trades you’ve won out of the total that you took positions for. If you win 55 out of 100 trades; your win rate stands at 55%. A win rate above 50% is ideal and suits a majority of day traders, and 55% is also an achievable number.

Risk/Reward

Risk/reward implies the amount of capital that is being put at stake in order to achieve some profit. So if you lose 10 pips on losing trades but make 15 on winning trades, you’re winning more than what you lose. So even if 50% of your trades work in your favor, you would still be in profit. 

By Michael Caine

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