Forex Day Trading – Top Brokers & Strategies.
Forex day trading involves buying and selling currency pairs with the view of making short – but frequent profits. In all but a few cases, you will never keep hold of an open position for more than a day. As such, you will need to be well versed in technical analysis to succeed in this segment of the forex trading scene.
In this comprehensive guide, we discuss everything there is to know about forex day trading – including what strategies and systems you can use to get started as a beginner today!
How to Day Trade Forex – Quick Guide.
If you’re keen to start your forex day trading journey right now without reading our guide in full – follow the quickfire steps outlined below.
Step 1: Choose your strategy – In order to day trade forex, you will need to deploy a strategy that is suitable for your skillset. A good starting point is to focus on major currency pairs – which offer the tightest spreads and lowest levels of volatility. Step 2: Sign up to eToro – You will need to have a top-quality forex broker on your side to engage in day trading. eToro is a great option as the regulated platform offers dozens of pairs at industry-leading fees. Step 3: Practice with the demo account – If you’re a complete newbie – it is best to start off with a demo account. eToro offers $100,000 in paper trading funds – with the demo platform mirroring live forex market conditions. Step 4: Trade live forex pairs – Once you are comfortable with how forex day trading works – you can start buying and selling currencies in the live markets.
We discuss the best forex day trading strategies further down in this guide – all of which are ideal for beginners.
What is Forex Day Trading?
Day trading in the forex industry refers to a specific short-term strategy that focuses on small but frequent gains. The general rule of thumb is that when you open a position – you will close it within a few hours. In some cases, your forex day trading order might remain open for just a few minutes.
This is in stark contrast to other fx trading strategies – with swing traders having the flexibility to keep a position live for several weeks. With this in mind, the profit margins available when forex day trading will be somewhat modest.
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To counter this, forex intraday traders will often place multiple buy and sell orders throughout the course of the day. This ensures that small gains quickly build up and thus – can make day trading lucrative for those that are able to consistently predict the currency market correctly.
Furthermore, the best forex brokers in this space will allow you to day trade with leverage. This allows you to boost the value of your stake, which in turn, can turn this little profitability into lucrative gains. You do, however, need to ensure that you learn the ins and outs of technical analysis to succeed in the forex day trading scene.
Top Forex Day Trading Indicators.
As noted above, the only way that you will become a profitable forex day trader is to have a firm grasp of technical analysis. For those unaware, this involves studying forex pricing charts with the view of finding trends. When a trend is discovered, this allows you to place a suitable trade to profit from your findings.
In order to be proficient at this form of price action analysis, seasoned forex traders will use technical indicators – of which there are dozens. Each indicator will look at a specific metric of a currency pair – such as support and resistance levels, volatility, and market sentiment.
To point you in the right direction, below we discuss three of the best day trading indicators to start with as a beginner.
Relative Strength Index (RSI)
One of the best day trading forex indicators to use as a newbie is the relative strength index (RSI). In its most basic form, the RSI – which falls under the umbrella of a momentum indicator, looks to see whether a currency pair is potentially overbought or oversold.
If a foreign currency is overbought, this means that there is too much upside pressure on the price of a pair, thus – a temporary market correction is likely. For a pair to be in overbought territory, then the RSI will show a reading of 70 or more.
At the other side of the spectrum, the RSI will show a reading of 30 or less if the currency pair is in oversold territory. This means that short-selling pressure is about to see a temporary reverse – meaning the price of the pair will rise.
Support and Resistance Levels.
Although not a technical indicator persay – looking for support and resistance levels is a great way to identify pricing trends as a day trading forex newbie. In a nutshell, support lines show us a specific pricing level that has historically protected a currency pair from falling further down.
For example, let’s suppose that on three occasions over the past two months – GBP/USD has approached a price of 1.3860. On each occasion, the price of the pair has bounced upwards upon approaching this level. As such, traders would view 1.3860 as a support zone on GBP/USD and thus – place an appropriate buy order.
On the other hand, let’s suppose that during the same period, GBP/USD has failed to continue its upward trajectory when approaching a price of 1.4240. As this has repeated itself on several occasions, traders will likely view this as a residence level and thus – a sell order will be placed just below this price point.
Moving Averages.
As the name suggests, moving averages provide an overview of the average price of a forex pair over a specific timeframe. The most utilized timeframes are the 50-day and 200-day moving averages. The form shows us the average price of a currency pair of the past 50 days and the latter at 200 days.
By deploying this technical indicator, we can assess whether the longer-term trend of a currency pair is about to go from bullish to bearish – or vice-versa. For example, if the 50-day moving average crosses from above the 200-day average to below – this indicates that the forex trading pair is about to enter a bearish market.
In trading jargon, this is known as a ‘Death Cross’. On the other side of the scale, a ‘Golden Cross’ would occur if the 50-day moving average crosses from below the 200-day moving average to above. This would indicate that the forex pair is about to enter a bullish market.
Best Forex Day Trading Strategies.
So now that we have covered the best technical indicators to use when day trading forex – we can now dive into strategies.
Day Trading Forex Demo Accounts.
Irrespective of whether you are a complete novice or a seasoned forex trader – demo accounts are one of the best tools you can have by your side. This is because you can day trade forex in real-time market conditions without needing to risk any money.
Instead, your chosen forex broker will give you an allocation of paper trading funds. For example, eToro offers a demo account without time restrictions that comes pre-loaded with $100,000. This allows you to test out your day trading skills in a truly risk-free environment.
Then, once you are confident that your strategies have the potential to make you consistent profits, you can then switch over to a real money account. Even if you are an experienced forex trader, demo accounts are superb for backtesting new systems.
Bankroll Management.
The next day trading forex strategy to consider as a newbie is that of bankroll management. In fact, this will ensure that you keep your trading stakes sensible and thus – avoid burning through your brokerage account balance.
This strategy will first require you to select a maximum stake percentage. The general rule of thumb for most forex day traders is 1% in this respect. This means that irrespective of how successful you are – you will never risk more than 1% of your trading capital.
After all, even the most profitable forex day traders will go through losing periods – so bankroll management ensures that you protect your previous gains. For example, if your trading account balance is $2,000 – your maximum stake per trade will amount to $20.
Then, if you successfully build your balance to $3,000 next month, your maximum stake will increase to $30. On the other hand, if you go through a losing period and your balance has decreased to $1,500 – then the maximum stake is reduced to $15.
Risk Management Orders.
In addition to protecting your bankroll, it’s a wise idea to get to grips with risk management orders. This will ensure that you never lose too much money on an unsuccessful trade. The most effective way of doing this is to place a stop-loss order on each and every position that you place.
For those unaware, a stop-loss order instructors your chosen forex broker to automatically close a position when it goes down by a certain amount.
Let’s suppose that you are trading EUR/USD – which is priced at 1.1960 You think that the pair will go down in value so you place a sell order You don’t, however, want to risk more than 3% on this trade As such, you can place a stop-loss order at 3% above 1.1960 This would amount to a price of 1.2318.
It is hoped that the value of EUR/USD falls, which would mean that your sell order returns a profit. However, in the event that the pair increases in value, you will never lose more than 3% of your stake.
Ultimately, if EUR/USD does hit a price of 1.2318, your stop-loss order will be triggered and thus – the trade will be closed automatically.
Copy a Successful Forex Day Trader.
If you are super-keen to start your forex endeavors today but you simply don’t understand about currency trading strategies or systems, then Copy Trading might be the ultimate solution. This trading tool is offered by top-rated broker eToro and it allows you to day trade currencies passively.
This is because you will copy the positions of successful forex traders of day trading like-for-like. For example, if the trader goes long on NZD/USD and short of EUR/CHF, you will place the exact same orders. Your stakes will be at a proportionate amount – as per what you invested into the trader.
For instance, if the trader risks 3% on their NZD/USD long order and you invested $500 – then your stake will amount to $15. Similarly, if the trader risks 10% on a EUR/CHF short order, your stake will amount to $50. When utilizing the Copy Trading tool at eToro, you will have thousands of potential investors and the best forex traders to follow in choosing from.
The platform makes the research profile simple, as you can search for a trader based on your preferred metrics. For example, you might be looking for a successful forex day trader that has made at least 20% in gains over the past three years.
Focus on Majors.
Another great strategy to consider as an inexperienced forex day trader is to avoid minors and exotics and instead focus on major pairs. These are forex pairs that always consist of a strong currency that is traded against the US dollar.
The liquid major pair in the forex market is EUR/USD – which will see you trade the exchange rate between the euro and US dollar. Other popular major pairs include GBP/USD, USD/JPY, and USD/CAD. All of the aforementioned pairs have a number of core characteristics that are highly suited for newbie traders.
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For instance, majors attract the most liquidity, which in turn, means that spreads will be much lower than other pair types. In fact, many ECN brokers in the online space allow you to trade major forex pairs at a spread of 0.0 pips.
Even more importantly for beginner day traders, major forex pairs are home to super-low volatility levels. In fact, rarely will a major pair move by more than 1-2% per day. This means that you will avoid larger pricing swings – which ultimately, can be a major headache for traders that are new to the forex arena.
Best Times to Trade Forex.
Unlike the traditional stock markets, the forex trading industry is accessible 24 hours per day, 7 days per week. However, if you attempt to buy and sell currencies over the weekend, you will find that trading volumes are much lower. This has the undesired result of paying higher spreads.
Plus, as trading volumes are modest over the weekend, pricing gaps is a regular occurrence. This means that there will often be wilder pricing spikes, so you might need to close a trade at a less favourable level.
With this in mind, the best time to trade forex is during standard market hours – which runs from 5 p.m. EST on Sunday – through to 4 p.m. EST on Friday.. This takes into account the global nature of the forex trading arena, with the Asian markets opening proceedings and the week closing in the US.
Benefits of Day Trading Forex.
Relatively new to forex day trading and still not sure whether this investment scene is right for you? If so, below we cover the main benefits of day trading forex from the comfort of your home.
Low Barrier to Entry.
As a retail client – which means that you do not come from a professional trading environment, entering the forex industry as a newbie has never been easier. In fact, all you need to do is open an account with a regulated forex broker, deposit funds, and you’re good to go.
The best forex brokers in this space also allow you to start trading with a small amount of capital. For example, the likes of eToro require a minimum deposit of just $200 and at Capital.com – this is even lower at $20. Ultimately, in the time it will take you to read this guide in full – you could have placed your first forex trade!
Ultra-Low Fees.
Unlike other investment sectors, fees in the forex trading scene are super low. Crucially, the best brokers in this space often allow you to buy and sell currencies on a spread-only basis – meaning that you will not be required to pay any trading commissions.
Furthermore, the spread itself on major currency pairs has never been more attractive – even for casual traders. For example, the best platforms in this space offer commission-free trading at a spread of less than 1 pip.
Alternatively, you might even consider opening an ECN account, which offers 0 pip trading alongside a small flat commission. Either way, entering and exiting a forex trade is something that can be done in a low-cost environment.
Rising and Falling Markets.
When you invest in a traditional asset like stocks or mutual funds – you are riding all of your hopes on the markets increasing in value. This is unconducive for short-term day traders, as the only way you can make money is if the price movement of the asset rises.
However, in the case of the forex arena, you can profit from both rising and falling markets. This is because you have the option of placing a buy order if you think the exchange rate of the pair will rise. Or, you can place a sell order if you think the opposite will happen.
Leverage.
The best online brokers allow you to trade assets with leverage – meaning you can increase the value of your stake. With that said, regulated brokers are capped in how much leverage they can offer retail clients. The good news is that major forex pairs attract much higher limits than other asset classes.
For instance, if you are based in the European Union, Australia, or the UK, you can only apply leverage of 1:5 when trading stocks and 1:10 on non-gold commodities and minor indices. However, major forex pairs can be traded with leverage of 1:30 – meaning you can amplify your stakes by 30 times.
In particular, this is ideal for entry-level forex traders that only have access to a limited amount of capital. For example, making gains of 3% on a stake of $200 will return a profit of just $6. But, by applying leverage of 1:30 on the same position – your profit is boosted to $180.
Regulation is Taking Serious.
Forex is one of the most regulated sectors of the financial markets. After all, not only do big banks and financial institutions trade currencies – but casual retail clients too. As such, national regulators keep brokers in check to ensure that inexperienced traders are well protected.
For example, eToro is regulated by three major authorities – namely, ASIC, CySEC, and the FCA. This means that the forex broker is required to keep client money protected in segregated bank accounts and keep crime away from the platform via KYC (Know Your Customer) processes.
Ultimately, by trading currencies at a regulated brokerage site – you can be sure that you are doing so in a safe and secure environment. Plus, as a retail client, you will benefit from negative balance protection. This means that losing trades that have been leveraged can not result in you owing the broker any money.
Forex Signals for Day Trading.
One of the best forex day trading systems to consider as a newbie is to sign up for a signal service. For those unaware, forex signals are offered by seasoned currency traders that perform technical and fundamental analysis throughout the day.
When the trader has identified a trading opportunity, it will instantly send a signal to its member base. For instance, the signal might be related to an RSI reading on GBP/USD that has gone below 30 – meaning that the currency pair is potentially oversold.
In turn, the signal might tell you to go long on GBP/USD at a limit price of 1.3910. You will also be provided with exit positions through a suggested stop-loss and take-profit price. This allows you to day trade forex without needing to perform any analysis yourself and thus – it ideal for newbies.
If this is something that interests you, one of the best providers that we have come across is Learn2Trade. The provider – which has more than 22,000 members in its ever-growing forex signal Telegram group, has a historical win rate of 76%.
By joining its premium signal service, you will receive three forex signals per day. This comes with all of the aforementioned entry and exit details – such as the currency pair, buy/sell, limit, stop-loss, and take-profit order. Prices start at just £35 per month, but you can get this down further by signing up for a longer plan.
There is no guarantee that you will make money using signals with this provider.
Best Forex Day Trading Platforms.
As we have discussed throughout this guide – if you want to day trade forex online – you need to have an account with a safe and low-cost broker. Your chosen platform not only needs to offer competitive fees, but heaps of forex markets and of course – support for your preferred payment method.
In the sections below, you will find a selection of the best forex day trading platforms for beginners.
1 . eToro – Overall Best Forex Day Trading Platform 2021.
eToro is a great online broker to day trade forex – especially if you are a newbie. You can open an account in just a few minutes and the minimum deposit is just $200. The trading platform itself is clean, crisp, and super easy to navigate – so the process of placing forex orders is seamless.
The platform – which is used by over 20 million traders, offers dozens of forex markets. This covers all major and minor currency pairs, alongside a huge selection of exotics. When day trading forex at this broker, you will not be charged any commission. Instead, eToro operates on a spread-only basis, so you only need to cover the gap between the buy and sell price of the currency pair in question.
eToro is also home to the previously discussed Copy Trading tool – which again, is ideal for newbies. To recap, this allows you to copy the forex positions of an experienced trader – meaning no research or analysis is need to be performed by yourself. There are no fees to pay when using the eToro Copy Trading tool and the minimum investment is just $500.
eToro is also a great option if you are planning to diversify into other asset classes. This is because eToro also offers stocks, ETFs, indices, commodities, and cryptocurrencies. Once you’ve opened an account, you can deposit funds with a debit/credit card, bank transfer, or an e-wallet like Paypal. And of course – eToro is a safe and regulated broker – not least because it is licensed by three reputable financial bodies.
Pros.
Heavily regulated trading platform used by over 20 million people 0% commission on stocks and ETFs Spread-only pricing structure on crypto, indices, forex, and commodities Very easy to use – ideal for beginners The minimum stake starts at $25 per trade Supports debit/credit cards, bank transfers, and e-wallets Copy Trading features promote passive investing.
Cons.
As a disclaimer, please consider that charting analysis tools are a bit basic.