Day trading in currencies is becoming an increasingly popular way for investors to take part in financial markets. Whereas a decade ago, it was en vogue to day trade in stocks, this has largely been taken over by the FX markets. This type of trading gives investors a chance to have access to a lot more liquidity than domestic markets would offer, because day traders on FX markets can trade with people from across the globe, instead of being confined only to the money that is in the domestic stock market.
An additional incentive of day trading in the FX currency market is that the market is always open, and you can trade any time of the day you want. Trading on the New York Stock Exchange, you have to trade when the market is open, and if you trade after hours, you risk making worse deals than you could have during trading hours. This is because far fewer people are trading in American stocks after the markets close at around 4 pm Eastern time. However, in FX currency markets, one major market or another is always open, allowing business-day investors to swap currencies, and insomniac investors from all over the world are also plugged into the digital currency markets at any given time.
FX stands for Foreign Exchange, which is exactly what is traded in the FX markets. Another word for this kind of trading is Forex. When you trade in FX, you are not trading in particular companies, securities, stocks or bonds. Instead, you are trading directly in the currencies of different countries. Imagine that you go to a foreign country and have to change your money to the local currency before you can buy anything. This is exactly what you do in currency day trading, except that you use large amounts of money and make many trades within a short period of time in order to profit from the gaps in between the currencies and the speed at which the currency rate changes.
Factors that lead to volatile FX markets include important international events and worldwide news. For instance, a natural disaster will have a profound effect on FX; on the other hand, beneficial news also tends to cause exchange rates to move, which investors trading on the FX markets can take advantage of. If a large, famous corporation makes an important announcement, for instance, this will have an impact on the stock market in that country, but it will also have an impact on the foreign exchange trading.
Of course, while it is usual and fairly constant for currencies to move slightly with relation to each other, it is fairly unusual for a currency to suddenly skyrocket or plummet in a way that earns more than a few cents on every dollar that is invested in the FX market. The way that investors make money in FX is through leverage. For every dollar that you put in your account, you can essentially borrow up to $500 from an FX broker. Therefore, you conduct your trading with much larger amounts of money than you actually invested, and potentially earn large amounts of return. On the other hand, the risk of loss is also increased, so it is important to have some good FX trading training before you begin, and to spend a few months trading in fake FX deals on training websites before putting real money into an account.