Demand and supply are two very important factors that constitute any given economy and market. The forces of demand and supply, their expansion and contraction, their increase and decrease, govern the rise and fall of the prices of a given commodity or financial instrument, or for that matter any possible goods and service that has a given monetary value. This simple principle is applied while trading in the Forex market. In this article, I shall be explaining you about day trading of foreign exchange and its simple mechanism.
What is Forex?
There are hundreds of national economies that operate throughout the world. The rates of currencies that these economies establish, have fluctuating trend, that changes almost daily. The Forex market is the market, where these currencies can be bought, sold and traded. For example, you can purchase Euros worth US$ 20. The Forex market basically originated to facilitate international trade transactions. The current scenario is that many banks, financial institutes and professional institutes have stepped into the picture in order to trade and make profits from the fluctuating rates of currency. Today, the Forex market basically operates as a full-time market (with the exceptions of weekends) and one can trade through authorized Forex brokers.
What is Day Trading?
In any given market, day trading basically implies trading of currency within a given amount of time. This time span starts with the opening of markets and ends with the close of the market. In case of the Forex market, the concept of day trading is, however, governed by the different time zones. For example, if a Chinese person is trading in the United States Dollars and Euros, his day trading time starts during the evening. In this type of day trading, there are some brokers and institutes that operate round the clock (again with the exception of weekends).
Forex Day Trading Strategies
It has been proved that as a result of substantial growth in the international trade, Forex markets have started booming and many people have started trading in the market to churn out profit. The following are some very simple tips that you can follow.
- Trend Following: The simplest of all Forex strategies is trend following. In such a policy, the investor uses his own intuition to purchase a rising instrument (in this case a currency), and sell it before the fall of the trend. Another situation where the investor can sell the currency is known as a short sell, where a falling currency can be sold before it reaches a point equivalent to initial investment.
- Constrain Investing: Constrain investing is very similar to the trend following. However in such a case, an investor relies solely on a short sell. Here, a constantly rising currency is sold as soon as it crosses a point that is equivalent to investment and same goes for a sale of falling currency.
- Range Trading: There are some trends that rise quickly instantly as soon as they fall or vice versa. The investor can thus invest in a falling rate and sell the same as soon as it rises. This policy can be a bit risky and one has to make a careful analysis of the rising and falling trends.
- Scalping: The fastest and the most difficult strategy is that of scalping. During scalping, a person buys a currency and sells it instantly, almost within a few minutes or seconds. There are basically two drawbacks of this process. Firstly, the amount of purchased units should be large and moreover, it requires a larger initial investment. On the other hand, there is a great risk of the currency remaining stable for a long time.
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