Advantages of Day Trading Currencies

Trading Currencies vs. Day Trading Stocks

Practice your trading on a demo using live market prices (click here for a test drive)

Day trading suffered in 2001 when a new law was passed restricting the way stock traders could trade.

The law basically required stock day traders to have at least $25,000 in their accounts if they wanted to participate in day trading on an ongoing basis. In essence, this eliminated many day traders from the market, since many that were day trading were doing it with less than $25,000.

Some people might argue that even though they have less than $25,000, they are still trading stocks, but the reality is that these people are holding stocks for more than a day or, in other words, short-term trading (not day trading).

From my previous explanations, I have demonstrated why doing this is so risky. Since the trader cannot close his positions when the stock market is closed (outside of the after-hours and pre-market trading sessions), he is exposed to potentially catastrophic losses. A stop loss is useless in this situation. [To learn more about currencies, click here]

So what can a trader with less than $25,000 do?

One option is to trade currencies. You can day trade currencies with a lot less than $25,000. In fact, you can day trade with as little as a few hundred dollars by opening a forex mini account.

Furthermore, the currency (or forex) market is open from Sunday around 4 PM EST to Friday around 4 PM EST - so a trader can day trade or short-term trade with an active stop loss most of the time. In the not too distant past, only banks and wealthy individuals and institutions could trade currencies, but now, thanks to the internet, small investor can participate in currency trading (or forex trading). Some of the mayor advantages of currency trading over stock trading are:

• More flexible trading hours - Currency trading goes on from Sunday afternoon to Friday afternoon, so for 5 days of the week you can day trade currencies all day long. The currency market does not close every day like the stock market. This basically allows the day trader to choose the hours that he is going to day trade with a greater degree of flexibility.
• Flexible leverage* - Day traders (with more than $25K in their accounts) have an intraday margin of 4 to 1. This basically means that they can day trade $100,000 worth of stock with only $25,000. Short-term stock traders (those who hold stocks overnight) only have 2 to 1 margin. As a currency trader (whether day trading or short-term trading), you have 50 to 1 leverage or more. That means that I can day trade $1,250,000 worth of currencies with $25,000. A big difference! Please note that using leverage can cut both ways. Leverage multiples the gains as well as the losses of the underlying investment, so please be extremely careful when using it. Most professional traders do not use more than 20 to 1 leverage (high leverage or low margin magnifies both trading profits and losses).
• Less starting capital required - As I mentioned before, if you want to start day trading but don't have $25,000, don't worry. A mini forex trading account requires only a few hundred dollars to start.
• Less currencies to follow - There are only a handful of mayor currencies to trade. This simplifies things quite a bit. On the other hand, there are tens of thousands of stocks out there. How do you choose which stock you are going to trade? It is much simpler to choose among a few currencies; at least in my opinion.
• More liquidity - Whatever we are day trading has to have enough volume to make it worth our while. Greater volume means that there are more people willing to buy and sell something at any given time. By some estimates, the currency market is more liquid than all the world stock markets put together.
• Free trading systems - A top of the line stock day trading system, like RealTick, costs a good amount of money a month (you should never day trade stocks with an online broker). There is plenty of great currency trading software out there that is free. This lowers the day trader's costs. Click here to sign up for simulator to practice day trading.
• Less restrictive for shorting - There are artificial controls built into the stock market to prevent it from going down too fast. The reason is that we live in a biased world that likes to see things go up instead of down. One of these artificial contraptions is the "uptick rule," which comes into play when shorting stocks, making it more difficult to sell a stock short than to buy it. This is unheard of in the currency market. Selling currencies short while day trading is just as easy as buying them.
• Great for short-term traders - For those that like to hold stocks for a few days when trading, currency trading might be a good fit. Since the currency market is opened 24 hours a day for 5 days a week, a currency day trader that wants to hold a position from one day to the next (or for a few days), can do it with an active stop loss order in place.

If you are a day trader or you think day trading is for you, I recommend you consider currency trading. You can sign up for a demo of a live day trading system on this page for free. If you decide to start day trading for real after that, the trading software is still free (unlike some advanced stock day trading systems in the market). As I mentioned in the paper trading section, using a demo system is a great way to practice day trading.

If you are ready to start day trading, click here to download a free currency demo for 30 days.

To register for a live forex training session online with a professional day trader, click here.

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