Investing in the currency market is a great way to make your money work for you. Day and swing trading are two of the most popular ways to invest, but many people don’t know what they are or how they differ from each other.
Day Trading means that you buy and sell stocks during the same day, while Swing Trading involves buying at one price and selling at another later on. Day traders usually trade with a much smaller amount of capital than swing traders because they can be more active throughout the day.
This post will cover both strategies so you can decide which one is right for you!
What is day trading and swing trading?
So first things first – what does it mean when you’re day trading and swing trading the currency market? Let’s start with some definitions:
- Day trading is the act of buying and selling currency in an exchange for profit in a single day. Day traders typically hold positions or trades ranging from seconds to hours, but not more than one day.
- Swing trading refers to long-term investments that typically last between one week and six months where investors buy currencies when they are cheap then sell them when their value rises again later on.
A popular strategy for Day Trading and Swing Trading the Currency Market is to enter the market price using limit order with stop loss set below the entry point. That way, you’ll secure your profits as well as potential downside protection if needed.
Let’s take GBP for example (British Pound Sterling) – let us say that its current price is $1.38 per GBP. If you Day Trade or swing trade Bitcoin, you’ll need to buy at that price. As the day progresses, it may be worth closer to $2 per GBP, and if that was your stop-loss point for Day Trading/swing trading (meaning the price where you would sell), then higher profits could have been made!
This is just one example – Day Trading and Swing Trading derive from many different strategies based on what currency they’re dealing with.
Here are some key takeaways:
- Day traders typically hold positions or trades ranging from seconds to hours, but not more than one day.
- Swing trading refers to long-term investments that usually last between one week and six months where investors buy currencies when they are cheap then sell them when their value rises again later on.
Trading currencies with a broker
Day trading and swing trading require the use of a broker. Day traders rely on their brokers to execute trades, while swing traders can trade through their broker or hold positions overnight with it for extra profit potential.
Finding the right brokerage is critical because some are better suited for day or swing trading than others.
Here are a few things that you would want to look out for when choosing a broker for day trading/swing trading:
- Day trading/swing trading capabilities
- Cost for trades (the lower, the better)
- The account minimums and how they vary concerning different markets, instruments, or trade sizes. Some brokers require a higher initial deposit before allowing traders to day trade more actively, while others offer premium features such as margin lending at low cost.
For more information, you might want to check out this article on Investopedia – Everything that You Need to Know about Choosing a Forex Broker.
The risks of currency trading
As with every investment, there are risks inherent in Day Trading and Swing Trading the Currency Market that you will have to consider.
Day trading, in particular, has a high risk of losing money because it is such an unbalanced investment. You will only be able to trade part of your account at any given time, and if you happen to have a bad day when some significant events occur that affect the currency market, then you are likely going to end up being out-of-pocket.
As for swing trading, you will also need to weigh the risk of holding on too long. If you expect a market rally, for example, and the rally never materializes, then there is an increased chance that your position will end up being closed at a loss.
Trading tips for beginners
It goes without saying that it’s essential to know what risks are associated with Day Trading or Swing Trading. Take steps to protect yourself, and be sure not to overstep your limits. Day trading is a fast-paced market where trades can occur in minutes or hours before they reverse direction.
Consider the following tips:
- Keep tabs on the currencies that you day trade/swing trade on. As the old saying goes – knowledge is power, and the more you know about the currencies you’re trading, the better you’ll be able to make informed decisions.
- Keep an eye out for, and know, your exit strategy before Day Trading or Swing Trading any currency. Know what limits are reasonable and how much time you have for a trade before it needs to be exited with minimal losses
- The best Day Traders/Swing Traders know that Day Trading and Swing Trading are long-term games. Day trading should be done in moderation, while swing traders are often more active over long periods.
- The keys to Day Trading or Swing Trading successfully include patience for both the highs and lows, which means not reacting emotionally when Day Traders/Swing Trades go sideways. Day Trading or Swing trading is a game of probabilities, and not every trade will be profitable.
- Don’t Day Trade/Swing Trade after consuming alcohol, drugs, etc. Day Trading and Swing Trading the Currency Market should always be done with clear judgement to avoid poor decisions that could lead you into serious financial trouble.
- Study how Day Trading/Swing Trading works. Day trading is a game of probabilities, and not every Day Trade will be profitable. Day traders must rely on their knowledge, skills, and understanding to try to beat the odds to make money Day Trading or Swing trading currencies
- Day traders should have some contingency plan to help them exit Day Trading or Swing trading trade with minimal losses. Day traders should also have an exit strategy before Day Trading or Swing trading any currency.
If you’re looking for a profitable trading strategy, day trading or swing trading may be the answer. However, these strategies require plenty of practice and knowledge to reap consistent profits.
Finding your winning strategy is difficult without some trial-and-error first. Trading takes time and patience – just like any other skill that needs developing! To help hone your skills, we recommend using a demo account with virtual currency so that you can experience different market scenarios over and over again until you find one that works best for you.