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November 6, 2009
Currency Day Trading
Currency day trading is the buying and selling of currency within the same day with no positions held overnight. In the early days of currency day trading, only large banks and financial institutions, as well as the wealthy participated in trading currency. Now, however there are numerous smaller investors who trade in the currency markets. It is important to note that currency trading and forex trading are the same, and so the terms are often used interchangeably.

There are basically two groups of currency traders that participate in this sort of day trading. They include those traders who work for the larger institutions noted above, and those who work alone. Those who trade currency along will typically manager other people’s accounts or trade their own accounts. They typically have more limited resources and they trade on a smaller scale when compared with those traders that trade for larger institutions. Those that trade for the larger institutions have more resources including expensive software, large amounts of capital, and leverage. They also often have access to a direct line to a dealing desk when trading currencies.

Trying to understand the foreign exchange rates when trading currency is not extremely difficult however it can be a little confusing at first. The basic foreign currency exchange rates are based on a pretty simple formula. The formula is basically Y-to-X exchange rate = 1 / X-to-Y exchange rate. Forex trades are bi-directional which means the ratios are also bi-directional. This means that when you compare US dollars to Euros, it is different than comparing Euros to US dollars. For example, 1 US dollar is worth .75 Euros, but one Euro is worth 1.34 US dollars.

Forex traders use foreign currency trading charts and these charts have a basic structure to them. The first column in the charts contains the country code which is a three letter code that designates the currency. For example, the United States dollar is USD. The second column in a foreign currency trading chart reflects the name of the country and its currency. The last columns in the chart show comparisons between the base currency of interest and other currencies.

As with any other type of trading it is important that the investor develops a trading plan. This trading plan should consist of things such as trading strategies, stop loss strategies, as well as entry and exit strategies. The trader must have a plan of what they will do before he or she attempts to do it.

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