History Of Forex Day Trading

Going back in the history of forex day trading, earlier the most important trades took place on the New York Stock Exchange. To make the trade, an investor would contact a stockbroker. The stockbroker would relay the order to a specialist on the floor of the NYSE, who would make the actual trade matching the purchaser with another broker's seller. Brokerage commissions were usually fixed at 1% of the amount of the trade.

One of the first steps to make day trading potentially profitable, as seen in the history of forex day trading online, was the change in the commission scheme. The United States Securities and Exchange Commission (SEC) , in 1975, made the broker commission rates illegal. This gave rise to discount brokers who offered much reduced commission rates.

During the early times as reflected in the forex day trading history, the financial settlement periods used to be much longer. The trades could take place for up to 10 working days after it was placed in the hope for a rise in the price. But today, the scene is totally different. Reducing the time period reduces the market risk and also the likelihood of default.

The second half of the twentieth century has seen an evolvement in the way the trades are made. Large proprietary computer networks, with the advent of Electronic Communication Networks (ECNs) have changed the face of forex day trading for ever. During the early times in the history of forex day trading, ECNs such as Instinet were very unfriendly to small investors. They often gave large financial institutions better prices and often were the cause of fragmented and illiquid market.

The founding of NASDAQ in 1971 was another important step in the history of forex day trading online. Computerized trading and registration required extensive changes to legislation and the necessity to develop the necessary technology.

The existing ECNs began offering their services to small investors. New brokerage firms specialized in serving online traders who wanted to trade on the ECNs. This combination of factors has made forex day trading possible for potential profits. An individual or small firm can make a large number of trades during a single day, and at low commission rates. Allowing an individual to make near-instantaneous trades and get favorable pricing is what is lucrative about the forex day trading. The liquidity and small spreads help the trader to cover his commission costs and show a profit.

Another hallmark in the forex day trading history was the coincidence of the individuals to day trade with the extreme bull market in technological issues from 1997 to early 2000. Also known as the Dot-com bubble, many new investors with little market experience made huge profits at forex day trading.

Another factor that added to the day-trading frenzy were the enormous profits made by the highly-experienced professional traders able to exploit the arbitrage opportunity created by SOES. In March, 2000, when this Dot-com bubble burst, and a large number of naïve forex day traders began to lose money faster than they had made during the buying frenzy and many of them went broke.

Today, forex day trading requires access to some of the most complex financial services and instruments in the market. Although it is still an issue much debated upon, no one can deny its prevalence.