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Day Trading and FOREX

Day Trading on the stock exchange and FOREX (foreign exchange) Trading are becoming increasingly popular ways to make money. But they are also one of the riskiest ways to make (and therefore lose) money.

Now, I don’t profess to be an expert in this subject I’m certainly not going to cover all there is to know about day and forex trading on one webpage, other than how it works and the pros and cons of this method of making money.

What is day trading?
Day trading, as the name implies, is trading on the stock exchange on a daily basis to take advantage of the fluctuations of gains and losses on stocks that occur on a daily basis, compared with long term stock investing where an average gain in the long term is expected.

For example, a stock may open the trading day at $0.60 and close at $0.66 – this may only sound like a small increase, but it is 10% of the share value. So, if you bought 10,000 shares in the morning for $0.60 per share (for $6,000) and sold them again at close for $0.66 per share (ie $6,600) you would have made $600 profit for the day! [not taking into account brokerage fees].

Sounds good I know, so what’s the down side? RISK of course!

Share prices can also drop in value on a daily basis, so you still need to carefully research your stocks and buy and sell wisely. By watching the stock exchange during the day, you can quickly get an idea of which stocks perform best and how they typically perform throughout the course of a day.

What is FOREX? FOREX (foreign exchange) involves purchasing other currencies and again relying on the fluctuations in foreign exchange value to make a profit.

For example, if the Australian Dollar is worth US$0.60 today, but increases to US$0.66 in the following week, again a 10% profit can be made.
 
Again though there is a risk that the exchange rate may actually plummet – which it did recently – so careful research is required.

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What does it cost?
Costs involved with wither day trading or FOREX include:

  • Data - While you can get free data on share values and foreign exchange rates, there are typically a day old by the time you get them – not much use for day trading and where major profits and losses can be made within even a few minutes of making a trade. It pays to pay for up-to-date and current data!
  • Brokerage fees – and if these are a fixed fee, you can often blow all of your profit if you are only tinkering with investing in this way.
  • Tax – don’t forget that trading income needs to be considered in your tax return. Because you are controlling what you spend and when you sell, it is YOUR responsibility to set aside what ever you need to pay tax on your earnings.
  • Investment capital – you of course need to buy some stocks/ foreign exchange initially. And to make any decent money out of day trading and to avoid brokerage fees eating up all your earnings, you really need to invest a minimum of $1,000.
And of course, given the high risk of on-line trading, there is a high risk that you will lose money – so don’t invest what you’re not prepared to lose! If the prospect of losing $1,000 or more in a day scares you too much, then perhaps try something a little safer!

Tips
If you think you want to give day trading or forex a go, then heed the following advice:

1. Get informed – do your homework and understand the markets before you invest. Spend some time just checking out how the markets work.

2. Find a reputable forex company or stock broker – and yes, there are frauds out there. Remember, if something sounds too good to be true, it probably is. Never use a company that doesn’t explain your risks.

3. Keep a journal of all your trades and investigations so you can detect trends in markets and gain a better understanding of how the market works.

4. You will find many different techniques for picking what to buy, when to buy, when to sell and how much to invest. Focus on 1-3 methods that suit you and your risk profile.

5. Understand risk and don’t be panicked by wild fluctuations.

6. Mange your money!

For more information, check out: Also check out the day trading links on our links page and this FOREX Robot Comparison.
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We are not certified financial planners or advisors. The information in this website is general information only. Always consult a licensed financial planner before making any finance or investment decision.


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