Get exposure to fast markets by day trading FX

DOLLAR-STERLING moved 150 points on Monday’s US Labor Day holiday. The market clearly did not take a break. It is a reminder that the restless forex market offers day traders real opportunities: tight spreads and sharp movements that can be dipped in and out of at low cost.

The volatility can mean big wins, but traders need tactics to ensure they put the right foot forward. Sometimes strategies can be as simple as watching for momentum, eyeing a gradual tumble or up-swing and following suit. For instance, Monday saw sterling tumble against the dollar all morning. Whereas yesterday saw the pound slide to 153.50 and bounce back 30-40 points three times over. Follow quickly enough and traders could edge themselves ahead of the pack.

Although national holidays don’t make for sleepy forex days, David Jones of IG Index does suggest picking trading days wisely, particularly when new to the business. Macro data releases such as employment figures, inflation and interest rates can drive a currency wild. Savvy traders will have an economic calendar to hand, with dates such as US non-farm payroll figures circled for attention.

Don’t be alarmed by every announcement, many – including retail sales data – can be pretty tame.

Some traders lose out as lively currency makes them either overly cautious or too lax. A poorly placed stop loss will either fail to protect or take a trader out too soon. The trick is to consult the charts and work out the trends.

Jones says: “You mustn’t be too cautious, a currency can easily jump between 50-80 points in a day. It’s silly to put a stop loss in too tight, putting one in at 50-100 points doesn’t necessarily mean accepting that kind of loss.”

Forex is a different game to stocks, even Vodafone – regardless of the effect that could be caused by its chairman’s departure – is generally unlikely to move more than five to six points in a day. Factoring in turbulence doesn’t mean blindly sticking with the initial bid, but being aware that playful markets need space to move around.

New traders can go exotic with bids on the Hungarian forint (see opposite), but it’s better to play it safe with the commonly traded currencies. The dollar-euro is most popular with 32 per cent of the market trading it. The dollar-yen and dollar-sterling follow close behind (see chart). FX trading tends to mirror the underlying market. This is a helpful way for traders to think through their pair choice.

For detailed tactics and strategies join City A.M.’s editor Allister Heath and GFT’s Boris Schlossberg for an “all-things-forex” seminar. Thursday 23 September, 8am-10am, The Grange Hotel, London. Register at