Currency trading can be really exciting for a day trader. With every trade and every blip in exchange rates, you have new opportunities to make money. Currency is a bigger, more liquid market than the U. Foreign currency may be an attractive place to store some of your trading cash, and it can be a great asset to day trade. Some types of currency trades are tax free. These trades are usually longer-term, involving the currency itself, not day trades and not trades in the futures or forward market.
But still — tax free! The exchange rate is the price of money. It tells you how many dollars it takes to buy yen, pounds, or euros. The price that people are willing to pay for a currency depends on the investment opportunities, business opportunities, and perceived safety in each nation.
This situation increases the demand for baht relative to the dollar and causes the baht to go up in price relative to the dollar. Exchange rates are quoted on a bid-ask basis, just as bonds and stocks are. A quote may look like this:. This is the exchange rate for converting the U. The bid price of The ask price of Day traders can trade currencies directly at current exchange rates, which is known as trading in the spot market.
When you exchange money to go on vacation in a foreign land, you are exchanging on the spot, and you are allowed to do it as a trader or as an investor. Day traders can also use currency exchange traded funds or currency futures to profit from the changing prices of money.
Spot currency — the real-time value of money — does not trade on an organized exchange. Instead, banks, brokerage firms, hedge funds, and currency dealers buy and sell amongst themselves all day, every day. Day traders can open dedicated forex accounts through their brokers or currency dealers and then trade as they see opportunities during the day.
If you are interested in trading currencies, be sure to check out the fees involved. Some banks and brokerages are really set up to do forex trades for businesses and travelers, so the fees will be too high for you to have a decent profit potential. Day Trading in the Currency Markets.More...