Many of us prefer Forex trading due to the least number of investments. But if you carefully see the actions of the retail traders, you will notice all of them have a different style. Based on the actions of the investors, we can classify the traders into 4 major groups.
- Scalpers
- Day Traders
- Swing Traders
- Position Traders
This discussion is about day traders and their transaction methods. After going through this article, you should be able to answer most of the basic questions related to the day trading profession.
Day Trading in CFD Market
It is a smart approach where traders buy and sell their assets and closes it within the day. That means the transaction system holds for a certain day only. It may also call short-term swapping but it is not scalping.
As a beginner, if you think scalping is excessively rapid and swing trading is quite dull, then day trading is the best option. Because time traders never conduct their transactions overnight.
Risk Management in Day Trading
If someone wants a success story in day dealing, he should at first plan for risk management. Risk management is a crucial element to obtain more profit.
If you are a beginner, you are then running trade with minimal risk. But it’s not more than 1% of your investment. For example, if you have $1000, a particular business cannot lose more than $10. It seems small, but it will deduct from the principal balance. So, do not underestimate it. Besides, with the order of stop-loss, you can manage your risk easily.
Day Trading Scheme in Forex
In this trading, scheme or strategy always depends on two things. They are-
- Win rate
- Risk to reward ratio
Win rate
Win rates signify the total number of profits yielding trades out of the entire businesses you run. For example, imagine you have won 60 works, and the total number of transactions you run is 100. So, a win rate of 60%—50% is regarded as the standard percentage among traders. So, your win rate (60%) is satisfactory and achievable. Check over here and learn more about advanced risk management techniques as it will improve your win rate in the CFD trading business.
The Risk to Reward Ratio
The amount of capital you have risked accomplishing a particular revenue indicates a personal risk or reward ratio. For example, if your losing trades pips is 30 and profitable trades pips is 35, then it is clear that you are winning more than loses.
Overall, 50% winning rates will be profitable. Consequently, Forex daily traders always strive for more win rates. Greater rate of winning in transaction implies-
- Flexibility of risk
- Elasticity with reward
- The rate of winning is lower but profitable
Leverage
Most Forex brokers in the US offer 50:1 maximum leverage on the pair of the primary currency. So, for example, you have taken leverage 20:1 (quite enough as a quotidian trader). So, you have $2000 and leverage 20:1. So deposited capital will be $40000. But you will set risk based on principal money or asset.
Currency Pairs for Trading
Let’s say you have open 1 standard lot trade in the USDCAD pair. So, it allows $10 fluctuation in a single pip movement. For example, suppose you have set a stop-loss on five pips. That means you have risked 5*$10= $50. Besides, you have already secured eight pips in winning order. So that means your winning trade worth “8*$10=$80”. As a result, we can see you gain profit.
Based on how much Money a daily trader in the FX market can make by executing 100 trades in a month, an estimation is given below:
60 profitable trades: 60*$80= $4800
40 losing trades: 40*$50=$2000
Thus, the gross profit is ($4800-$2000) = $2800.
Slippage– when your Loss is more significant than expected Loss even with stop loss.
Expected Loss– before stating trade, the order of stop-loss you set for.
We tried our best to make you understand every single term with calculations related to day trading. The strength of someone’s grip over the basic concepts determines his success rate in the Forex market. None should allow themselves to keep away from learning such basics.