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PepperstoneHow to Start Forex Day Trading
Written by Steven Hatzakis
Edited by Jeff Anberg
Fact-checked by Joey Shadeck
To succeed as a day trader in the forex markets, you’ll need a broker that can execute your trades efficiently, a trading platform that delivers powerful tools, and, perhaps most importantly, you’ll need a sustainable day trading strategy.
Though this guide does not constitute investment advice, it will answer some high-level questions and cover technical themes essential to day trading in the forex markets that will be helpful for both beginner traders and highly experienced investors.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 51% and 89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
What is forex day trading?
Generally speaking, the forex markets are open 24 hours per day during the trading week (learn more about forex market hours). Traders running forex day trading strategies open and close their positions within the same day.
When forex day trading, all open positions are exited during the same trading day, before the cut-off time for rollover (when trades carry over to the next day and interest charges apply – typically before 5 p.m. EST for many brokers). That said, the cut-off for exiting trades in the forex market can be more complicated than traditional day trading.
If you open a forex trade at 4:30 pm and exit the trade twenty minutes later at 4:50 pm, that would be considered a forex day trade. However, a trade opened at 4:50 pm and exited at 5:10 pm would not be a true day trade, as the position was exited past the rollover time/deadline. In this case, the trade can’t settle until the next trading day.
Note: If you opened your trade after 5:00 p.m., it would still technically be a day trade on the following day, as long as you exited before the next rollover period (even if you technically held the trade overnight).
Carrying costs (interest rate) charges apply when holding a trade past 5:00 p.m. As a forex day trader, you’ll want to avoid those costs, but there may be instances where you want to hold a trade past the rollover time. The exception is on Fridays – you’ll most likely want to exit the market before the close to avoid being stuck in open positions over the weekend.
How to start day trading forex
First, make sure that you’ve chosen a highly rated, properly regulated forex broker. The best forex brokers should be able to provide the trading conditions suitable for day trading: versatile trading platforms, advanced trading tools, high-quality research content, and competitive trading costs.
When getting started as a day trader, you’ll spend most of your time creating a plan unique to your needs. Even relatively simple concerns can have a significant impact on the kind of strategy you create. For example, whether you’d like to trade in the morning or throughout the day can determine the currency pairs you focus on.
Over the years, I’ve traded millions of dollars of volume as a forex day trader. Below, find my top ten things to consider before putting together a trading plan and starting to day trade:
1. Budget: Determine how much money you can afford to risk (and lose). Trading forex on margin is speculative; leverage and volatility increase the level of risk. It is always prudent to err on the side of caution with smaller trades and then scale up your balance if your results from forward-testing are consistent.
2. Trading Income Goals: Determine your goals. What is your profit target? Calculate how speculative or conservative you want to be; think about targeted returns over a single year, then break that down into monthly, weekly, and daily targets.
3. Risk Tolerance: What is your risk tolerance? Once you’ve figured out your daily profit targets, determine (and then adhere to) a daily risk threshold. When the risk threshold is met, you stop trading for the day.
4. Risk-Reward Ratios: Keep track of the ratio of daily target profit to daily target risk in your trading, known as the risk-reward ratio. For example, if your target profit is $300 and your risk threshold is $150, that represents a 1:2 risk-reward ratio.
5. Entry and Exit points: When will you enter the market to open a new position? When will you exit? These seem like simple questions, but they represent foundational pieces of your day trading strategy. Whether you use your subjective judgment or quantitative techniques (such as indicators, fundamental news, or sentiment data), know there are no magic bullet answers to these questions.
6. Trade Size: This crucial factor determines the size of your potential profit or loss as currency prices change (i.e., per pip). Your trade sizes, relative to your balance, must align with your goals and risk tolerances. For example, if you expect a 10-pip breakout within the next 15 minutes for the USD/JPY, a small trade size would yield negligible results. On the other hand, larger trade sizes might violate your target risk thresholds.
7. Risk Management: Depending on your daily profit targets and risk thresholds, it can be a good practice to decide on your maximum profit or loss per trade. For example: If your daily goal is $300, do you want to achieve that with a single trade, or ten smaller trades? There are trade-offs on both sides. You only have one shot with a single trade, but ten trades will require more work and time. Nonetheless, setting a boundary of profit and loss on a per-trade basis can help remove some guesswork.
Prepare for the unexpected
I’m a big believer in the use of stop-loss orders and limit orders for managing risk. Occurrences like platform crashes or drops in your internet can introduce genuine risk to your capital if you don’t use stop-loss orders.
8. Order Management: You might enter the market with a market order and attach a stop-loss and limit immediately afterward on a post-trade basis. Or, you might add the stop-loss and limit before sending the market order and opening your trade. Either way, you need to manage those orders and modify them according to your strategy if your market expectations change. Becoming familiar with your broker’s available order types is essential for fine-tuning your strategy.
9. Managing Multiple Trades: If you find yourself managing multiple trades at the same time, you must ensure that the total potential risk/reward across all your trades aligns with your day trading strategy.
10. Gain-to-Loss Ratio: In reality, you may alternate between profitable and unprofitable trades within a given trading day. The number of trades you place and the size of each should attempt to stay within the confines of your target gain-to-loss ratio.
If, after implementing a trading plan with these ten points in mind, your performance isn’t as expected, it might be a good time to stop and reflect on every one of your trades.
Examine what the market conditions were and the decisions you made when entering those trades. That said, even in the best conditions and with the most sophisticated technical analysis, sometimes the market will just move against you. Knowing when not to trade is often more important than knowing when to trade.
What you should know before you start day trading forex
There are thousands of day trading strategies advertised on the internet (or by finance influencers). Many of the strategies promoted on the internet claim to guarantee success, but are often schemes designed to sell you low-quality trading advice (learn more about how to avoid scams).
Ultimately, the responsibility of your trading strategy remains with you. This doesn’t mean you can’t use popular indicators or technical studies, but you shouldn’t expect them to work like magic; there is no indicator or strategy guaranteed to solve all your trading needs.
As a day trader, you will inevitably have some losing trades, just as you will have some winners over a long enough period. The key is to develop a personalized strategy with a sound methodology; each trade should align with your goals, risk management principles, and overall strategy.
Starting with a smaller balance is one way to approach day trading in forex markets, including using a forex demo account (though demo trading results should not be heavily relied upon as an indication of your strategy's potential – or lack thereof).
Below are some fundamental concepts to learn before diving into forex day trading:
Liquidity
There are times when the markets are thin and liquidity is low – that can be a sign of uncertainty if the market is moving sideways and indecisive. Other times, it can be a precursor to a liquidity squeeze or abrupt move if large volumes suddenly start pouring in. If there is not enough liquidity to fill orders, the market will move to fill orders that may be resting above or below the current price.
Volatility
The forex market might not look volatile compared to other financial markets like the stock market, but the use of leverage makes forex trading incredibly risky. Leverage amplifies even the smallest market movements. It’s important to understand the impact that volatility can have on margin depending on the amount of leverage you use.
For instance, the U.S. Dollar might only have a 1% move in a single day, but if a day trader is using 20:1 leverage (5% margin), then that 1% move could equate to a 20% loss (or gain).
What is leverage?
Learn more about leverage in forex. If you are looking for a broker that will suit a high-leverage trading strategy, check out my guide to the best high-leverage brokers.
Trading volume
Trading volumes are an important reflection of the conditions in financial markets. Because forex markets are decentralized, real-time volumes are typically specific to a given broker or trading venue.
As a forex day trader, watching forex volumes in real time can be one of many indicators that inform your approach to market analysis. A sudden spike in volume could be the prelude to a large market move just as a sudden drop in volume can be the precursor to a sudden change in the market prices. Therefore, volumes should not be overly relied upon alone, but instead examined as part of the larger picture, combined with news, sentiment, technical indicators, and other factors and analysis in your strategy.
What moves currency markets
The main driver of movement in the currency markets originates from the monetary policy adjustments (setting interest rates for borrowing and lending) made by each respective country’s central bank. The forex markets are incredibly efficient and, due to the significant trading volumes, there isn’t one specific thing that will move markets on a day-to-day basis. Rather, markets are moved by a combination of factors.
Did you know?
Exchange rates used to be fixed and pegged to the value of gold, but following the end of the Bretton Woods agreement of 1944 about 50 years ago, exchange rates are now floating and relative to other currencies.
Central bank policies drive supply and demand, including whether a country will be printing more money (adding supply), removing liquidity from the markets by raising interest rates, or enacting other monetary programs that affect forex market prices. Market participants, ranging from central banks to forex traders, drive supply and demand by buying and selling currency, which in turn moves the markets.
Pro tip:
It’s good practice for any day trader to follow the economic calendar provided by your broker. It may not be realistic to read every announcement for every calendar event, but it’s good to be aware of the calendar events directly related to the currency pairs you are trading.
Pros and Cons of forex day trading
Forex day trading is not for the faint of heart. Things can go very wrong very fast. Even if you follow your strategy perfectly, you can still lose money.
Though day trading is a full-time job for some, it’s important to remember that the odds are stacked against you.
Pros of forex day trading:
- The potential for active income from full-time or part-time trading.
- Potential tax efficiencies if done for work under a corporate account.
Cons of forex day trading:
- The majority of traders lose money.
- Developing a comprehensive trading strategy is incredibly difficult and time-consuming.
- Requires the ability to sustain focus and discipline repeatedly
- Emotions and adrenaline can run high when day trading, which can be exhausting
Forex day trading strategies
In my years of day trading forex, I’ve found that the best philosophy for making money from day trading is to devise a strategy that allows you to keep your average losses smaller than your average profits, after fees and trading costs. Of course, this is easier said than done.
For example: Maybe you’ve put together an amazing run with 1,000 profitable trades; if your average win is smaller than your average loss, and the size of your losses overall outweighs your combined profits, the net result will still be a loss.
That said, your win rate also matters. If you have a high win rate, you can tolerate a more aggressive risk/reward ratio. With a lower win rate, you’ll need to risk less relative to every pip to increase your chances of a positive return.
Expected profit calculation
Your overall expected profit over a series of trades is based on your win rate (WR) multiplied by your average profit (AP), minus your loss rate (LR), multiplied by your average loss (AL).
As an equation, it looks like this:
Expected return = (WR×AP)−(LR×AL)
There is no perfect day trading strategy. Whether you are deciding when to enter and exit the market manually or you are using an indicator-based automated trading strategy, you’ll still need to devise a trading methodology that works for you.
Here is a high-level overview of some popular trading strategies for day traders (and traditional retail traders):
Trading Signals
Trading signals allow forex traders to share trading opportunities with other traders and investors. When a trading opportunity (usually a recommendation to buy or sell) is identified, signal providers can share that information with other traders. Some forex trading signals are provided by actual traders (similar to copy trading) and others are generated by computer programs. Check out my guide to forex signal providers to learn more about some of the best signal providers for day traders.
Social Copy Trading
Copy trading has grown in popularity over the years. Pioneered by brokers like eToro, the idea of copy trading is simple: use technology to copy the real-time trades (forex signals) of other traders on your copy trading platform of choice. Simply follow a copy trading signal provider and then decide to what degree you want to copy the signal provider’s strategy, and how much of your capital you want to allocate. There are multiple third-party copy trading providers on the market today, such as cTrader, Pelican, and ZuluTrade. Check out my guide to copy trading to learn more.
Technical indicator-based strategies
Forex traders who are fans of technical analysis (as opposed to fundamental analysis) will likely gravitate towards technical indicator-based trading strategies. Technical analysts use tools such as indicators and forex charts to examine market movements in an attempt to forecast price trends and market patterns. These technical strategies are designed to help traders identify points of exit and entry and to develop their overall trading strategies.
Below, I’ve listed some examples of popular technical indicators, some of which are used by forex day traders:
- Moving average crossovers
- Moving average convergence/divergence (MACD)
- Bollinger bands
- Ichimoku Cloud
- Oscillators
- Keltner channels
- Relative Strength Index (RSI)
- Donchian channels
- Pivot points
- Fibonacci retracements
FAQs
Which currencies can you day trade?
Opportunities for day traders can arise from any currency pair, regardless of whether they are a major or minor pair. While the list of available currency pairs can vary across brokers, practically all forex brokers offer the major pairs, which include the U.S. Dollar (USD). Examples of major pairs include the EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, NZD/USD, SGD/USD, HKD/USD, and CNH/USD.
Major pairs are more liquid and tend to have tighter spreads and lower volatility than minor or exotic pairs.
Cross-currency pairs are derived from two majors, such as the GBP/JPY, which is derived from the GBP/USD and USD/JPY. In these cross-currency pairs, the prices are purely determined by movements in their major constituent currency pairs.
There are also exotic currency pairs and emerging market currencies, like the ZAR/USD, TRY/USD, USD/THB, USD/CHF, USD/IDR, and dozens of others. These tend to have higher spreads, carrying costs, and volatility.
Some of the best forex brokers offer a large variety of pairs, such as IG, Saxo, and CMC Markets. CMC Markets offers nearly 160 currencies and can even quote them both ways, allowing you to trade the EUR/USD and the USD/EUR.
Learn more about currency pairs by checking out my guide to currency trading.
Is day trading forex legal?
Yes, day trading forex is legal across the globe, with only a few exceptions. In countries like India, for example, there are central bank restrictions on the movements of currencies for investment purposes.
Even if day trading is legal in your country of residence, it’s still important that your broker is well-regulated and licensed in multiple reputable jurisdictions. For example, if your broker is operating out of the Marshall Islands or Saint Vincent and the Grenadines and doesn’t hold any reputable regulatory licenses, that could be a strong sign that you’ve come across a potential scam. Learn more about how we track over 100+ regulatory jurisdictions to determine each broker’s Trust Score.
When can you day trade forex?
The forex markets are open 24 hours a day from Sunday evening to Friday afternoon (for specific hours check with your broker or learn more about the intricacies of the forex market hours).
What are the best brokers for forex day trading?
My top picks for the best brokers for forex day trading are Interactive Brokers, IG, and Saxo. Brokers well-suited for forex day trading must excel in addressing the heavy demands of day traders continually making numerous quick trades each and every day. They must be highly trusted, provide the currency pairs you wish to trade, execute your trades in a manner fair to you, and offer a platform suite and trading tools beneficial to your day trading strategy. These three brokers are leaders in all of these categories.
| Company | Average Spread EUR/USD - Standard | All-in Cost EUR/USD - Active | Active Trader or VIP Discounts | Execution: Agency Broker | Execution: Market Maker | Visit Site |
 Interactive Brokers
|
0.63 | 0.63 | Yes | Yes | No | |
 IG
|
0.98 | 0.82 | Yes | Yes | Yes | |
 Saxo
|
1.1 | 0.9 | Yes | Yes | Yes |
To learn more about how to choose a broker for day trading, and read more about why I picked my top recommendations, check out my full guide to the best brokers for forex day trading.
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About the Editorial Team
Steven Hatzakis is the Global Director of Research for ForexBrokers.com. Steven previously served as an Editor for Finance Magnates, where he authored over 1,000 published articles about the online finance industry. A forex industry expert and an active fintech and crypto researcher, Steven advises blockchain companies at the board level and holds a Series III license in the U.S. as a Commodity Trading Advisor (CTA).
Jeff Anberg is a Staff Editor at ForexBrokers.com. Along with years of experience in media distribution at a global newsroom, Jeff has a versatile knowledge base encompassing the technology and financial markets. He is a long-time active investor and engages in research on emerging markets like cryptocurrency. Jeff holds a Bachelor’s Degree in English Literature with a minor in Philosophy from San Francisco State University.
Joey Shadeck is the Content Strategist and Research Analyst for ForexBrokers.com. He holds dual degrees in Finance and Marketing from Oakland University, and has been an active trader and investor for close to ten years. An industry veteran, Joey obtains and verifies data, conducts research, and analyzes and validates our content.