Day trading in the forex market may sound fun and exciting, but is day trading really the way to make money? Forex day trading can be profitable, partly because the forex "day" is longer than the stock market day.
Forex has been described as a twenty-four hour market. In some respects, that is true. You can trade forex twenty-four hours during the weekdays. However, the market closes Friday evening at 5:00 pm EST. Trading volume drops off considerably after 12:00 noon EST on Friday and does not pick up again until later in the week. Some forex traders prefer to wait until a trend gets established late Monday, or even Tuesday, before placing trades.
In the U.S., a typical day trader in the stock market might place a trade at 9:30 am Eastern time when the stock market opens, and close the trade before the stock market closes at 4:00 pm. The stock market day trader has only a six and a half hour window for the trade to be profitable. The forex day trader, on the other hand, can place a trade at 7:00 pm Eastern time, during the opening of the Asian session, and has a twenty-four hour window in which to close out a day trade. That's almost four times longer than the stock market trader.
Although forex trading occurs twenty-four hours a day, most forex day traders prefer certain times that give a higher probability of success for trades. One way to increase probability of success is by trading when there is overlap between markets.
There are four forex markets: New York, Tokyo, Sydney, and London. New York opens 8:00 am to 5:00 pm EST. Tokyo opens 7:00 pm to 4:00 am EST. Sydney opens 5:00 pm to 2:00 am EST. London opens 3:00 am to 12:00 noon EST. London has the largest volume of trading, followed by New York, Tokyo, and Sydney. Some traders consider it a waste of time to trade during the Asian or Sydney sessions, when currencies are less active. For day traders to make money, currencies must make large moves. Many forex day traders prefer the opening of the London market, the opening of the New York market, and the overlap between London and New York.
Another advantage for the forex day trader is the impact of news. Company news that might move a stock price may not occur regularly. In contrast, interest rate and economic news that moves currency prices occurs frequently in forex.
The twenty-four hour forex day is helpful for novice traders with day jobs. The full-time employed day trader, by sacrificing a few hours sleep, can gain experience in day trading without jeopardizing a day job. And because forex brokers offer demo, or practice accounts, the forex day trader can go through the inevitable ups and downs and blown accounts without risking a dime.
Marcia Borden is a contributing writer for Forex Aura ( http://www.forexaura.com )
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