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Learning To Day Trade Forex
Today many people are looking for alternatives to supplement their income due to high unemployment rates around the world
. Learning to day trade Forex (foreign exchange) has become increasingly popular. If you are unfamiliar with the term Forex it is also known as currency trading. Just like how you can speculate on whether an individual stock will go up or down you can also speculate on how one country's currency will perform versus another.The most popular currency traded is the EUR/USD which represents the European union versus the US dollar. Lets say that right now the level is 1.3000, this means that it costs one dollar and 30 cents to buy a Euro. You may notice that there are 4 decimal places, this is because the brokers allow you to speculate on intervals of 1/100th of a cent. These intervals are commonly known as "pips" and so between 1.3000 and 1.3100 there are 100 pips.
How it works is that you are betting on if you think the currency pair will go up or down and you risk a fixed amount per pip. This can be as low as 1 penny per pip or a standard unit called a "lot" is 10$ per pip. Let's say that the Eur/USD pair is at 1.3000 and you want to make a bet that it will go up, you first determine how many pips you would like to risk and then set your stoploss.
For example, you can enter your stoploss at 1.2900 which is 100 pips. If you are wrong and the price goes to 1.2900 you will take a loss. The next point to set is your Take Profit which is where you will exit the trade with a profit. It is very important to know how much you are risking and what you expect to gain. For example, you could enter a buy trade at 1.3000 for 1$/pip with a stoploss at 1.2900 and a take profit at 1.3100. If you are right you will gain about 98$ and if you are wrong you will lose about 102$.
You may be wondering why it is not a gain of 100$ or a loss of 100$, this is because you pay a "spread" fee to the broker each time you enter a trade which is how they make money. The spreads vary from broker to broker but essentially you pay a fee in points for each trade.
Most beginners assume that learning to day trade forex must be very easy as there are only 2 directions the pair can go. If it was so easy then everyone would be a millionaire. The reality is very different and statistics indicate that close to 95% or retail (amateur) forex traders will lose and give up within 2 years. If this is an endevour you choose then be sure to get a high quality education on how to day trade forex.
Learning To Day Trade Forex
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