What Is Real-Time Forex Trading?

Real-time forex trading is a type of financial speculation in which the speculator bets on the movement in the exchange rates of foreign currency pairs. Traders who engage in real-time forex trading often use technical analysis techniques to inform their decisions. Because most real-time forex traders make their traders over short timeframes of less than one day, real-time forex trading can be seen as a type of day trading.

Key Takeaways

  • Real-time forex trading is the practice of buying and selling currency pairs over very short timeframes.
  • This type of trading relies on sophisticated computer systems and brokerage platforms.
  • Real-time forex traders must be careful to ensure that their potential profits are not wiped out by the commissions, bid/ask spreads, and other fees charged by their broker.

How Real-Time Forex Trading Works

As their name suggests, real-time forex traders are traders who buy and sell currency pairs on the foreign exchange market. The term “real-time” refers to the fact that this trading is done over very short time periods, sometimes buying and selling in less than a few seconds. To do this, real-time forex traders use sophisticated computer programs and brokerage platforms to access real-time market information and execute transactions at nearly instantaneous speeds.

Those wishing to experiment with real-time forex trading should be aware that significant losses may be possible. Even with timely access to price quotes and trade executions, it is still possible for traders to face larger than expected losses when markets react suddenly to new events. This is especially true when trading currency pairs that have relatively low liquidity. In such situations, prices can quickly “gap” above or below their usual trading ranges.

When placing trades, real-time forex traders rely on brokers who offer forex trading accounts. Different types of accounts are available, depending on the size of trades engaged in by the trader. Although most forex accounts offer trades in lot sizes of 100,000 currency units, so-called “mini accounts” allow 10,000-unit trades, while “micro accounts” offer 1,000-unit trades. Brokers also differ in terms of commission and fee structures, as well as the types of data and charts made available through their platforms.

Real World Example of Real-Time Forex Trading

To illustrate, consider the following chart, which depicts one minute of trading for the U.S. dollar (USD) and Canadian dollar (CAD) currency pair. Each minute, the chart plots a new “candlestick,” depicting the high, low, open, and closing prices for the currency pair.

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Image by Sabrina Jiang © Investopedia 2021

From looking at this chart, we can see that the USD/CAD currency pair was more volatile in the early part of the day, gradually trading between the upper and lower bounds traced by the purple rectangles near the end of the day. A real-time forex trader using a similar chart may have tried to buy near the lower bound of this range and sell minutes later once the price reached the upper bound. Other traders may use different strategies, such as trying to anticipate and profit from the more volatile swing in prices seen earlier in the day.

Regardless of their strategy, all real-time forex traders must be careful to ensure that their trades are worth making after taking into consideration the commissions, bid/ask spreads, and other costs associated with executing these trades.