Day trading
Compare a planned exit with an improvised one
Two people open the same EUR/USD day trade at 1.0850. The first writes down three prices before clicking: a loss exit, a gain exit, and a time to close. The second watches the price and decides later. Both pay the same spread. The difference is not skill. It is whether the exit was fixed before the position existed.
The first person's loss exit sits 20 pips below the entry, at 1.0830. The gain exit sits 20 pips above, at 1.0870. The time to close is the end of the session. If the price touches either price, the position closes there. If neither is touched, the position closes at the time. Every outcome is known in advance.
The second person has no such prices. When the price falls, the decision is whether to wait. When it rises, the decision is whether to take more. Each decision is made while the price is moving, and the account balance changes with it. A day trade becomes an overnight trade when no time was set, because the session ends and the position remains open.
Calculate the cost of a wider spread near the close
A spread is the gap between the buy price and the sell price. On EUR/USD it is often quoted in pips. One pip on 0.10 lots is KSh 129 in the examples on this page. On 0.20 lots it is KSh 258. The spread is paid once when you open and once when you close, because you buy at the higher price and sell at the lower one.
Near the daily close, many brokers quote a wider spread. The exact width varies between brokers and between times of day. Suppose the spread widens from 2 pips to 4 pips on a 0.20 lot trade. The cost changes from 2 x KSh 258 = KSh 516 to 4 x KSh 258 = KSh 1,032. The gross result is unchanged, so the net result falls by KSh 516.
A commission per lot can add to this. Some brokers charge a separate commission and quote a narrower spread. Others quote a wider spread with no commission. The total cost is the spread plus the commission, and it varies between brokers. Check the contract specifications for the instrument you are trading before you size a position.
Set a time exit and a loss exit before entry
A time exit is a clock time, not a price. It says: if neither price is hit, close at this time. For a day trade, that time is before the overnight rollover. The rollover is when swap is charged. A position closed before it is not held overnight, so no swap applies. This is the main difference between a day trade and a position held for more than one session.
A loss exit is a price where you accept the loss. It is set before entry, not after the price falls. On a 0.20 lot EUR/USD trade, a 20 pip loss is 20 x KSh 258 = KSh 5,160 before costs. If the spread is 2 pips, the net loss is KSh 5,160 plus KSh 516 = KSh 5,676. The number is known before the trade opens.
A gain exit is a price where you accept the gain. It is also set before entry. A 20 pip gain on the same trade is KSh 5,160 before costs. After a 2 pip spread, the net gain is KSh 5,160 minus KSh 516 = KSh 4,644. The ratio of possible gain to possible loss is not equal, because the spread is paid on both sides. This is why a day trade needs the gain to be larger than the loss before costs.
One day on EUR/USD: 20 pips, two outcomes
| Step | Amount | Note |
|---|---|---|
| Instrument and price | EUR/USD near 1.0850 | The example rate used for every calculation below. |
| Position size | 0.10 lots | One tenth of a standard lot, so one tenth of the pip value. |
| Pip value on this size | KSh 129 | One pip on one standard lot is 10 US dollars; on 0.10 lots it is 1 US dollar; converted at 129 KSh per US dollar. |
| Move in the planned case | 20 pips in your favour | 20 x KSh 129 = KSh 2,580 before costs. |
| Spread cost | KSh 258 | A 2 pip spread is paid on entry and exit, so 2 x KSh 129. |
| Planned case, after spread | KSh 2,322 | KSh 2,580 minus KSh 258. |
| Move in the rushed case | 12 pips against you | Closed in a hurry before the session ends: 12 x KSh 129 = KSh 1,548. |
| Rushed case, after spread | minus KSh 1,806 | KSh 1,548 loss plus KSh 258 spread. |
Your broker may round the pip value, add a commission per lot, or quote a wider spread near the daily close. Swap is not charged on a position closed the same day, but any broker can change its own costs, so check the contract specifications before you size a trade.
Doing it once, step by step
The following steps put the comparison into practice on one EUR/USD day trade. Work through them in order before you open any position.
- 01
Write the three exit prices
Before you click buy or sell, write down a loss price, a gain price, and a clock time. The loss price is where you close for a loss. The gain price is where you close for a gain. The time is when you close if neither price is hit. Keep the note where you can see it.
- 02
Calculate the pip value for your lot size
Find the pip value for 0.10 lots in KSh from your broker. Multiply it by your lot size divided by 0.10. For 0.20 lots, that is 2 x KSh 129 = KSh 258 per pip. Write this number beside your exits.
- 03
Calculate the loss and gain in KSh
Multiply the pip distance to your loss exit by the pip value. Do the same for your gain exit. Subtract the spread cost from the gain, and add it to the loss. For a 20 pip move on 0.20 lots, the gross is 20 x KSh 258 = KSh 5,160. A 2 pip spread costs 2 x KSh 258 = KSh 516.
- 04
Check the spread and commission before entry
Look at the current spread on EUR/USD and any commission per lot. These vary between brokers and can widen near the daily close. If the spread is wider than usual, the net result on both exits is smaller. Decide whether the trade still meets your plan before you open it.
- 05
Close at the first exit that is hit
If the price reaches your loss price, close there. If it reaches your gain price, close there. If neither is reached, close at the time you wrote down. Do not move the exits while the position is open. Moving them turns a planned day trade into an improvised one.
- 06
Record the result after the close
Write down the closing price, the time, and the net result in KSh. Compare it with the numbers you calculated before entry. If the spread or commission was different, note by how much. This record shows what the trade actually cost, not what it was expected to cost.
The mistake most people make here
The common mistake is to open a day trade without deciding the exit first, then hold it into the evening hoping it turns around. That turns a planned day trade into an overnight position, which can carry swap and a gap risk you never agreed to. Before you click buy or sell, write down the price where you will close for a loss, the price where you will close for a gain, and the time you will close either way. If the session ends and neither price was hit, close at the time you wrote down.Check yourself
You trade 0.20 lots of EUR/USD and the price moves 15 pips in your favour. Using KSh 129 per pip on 0.10 lots, what is the gross result in KSh?
0.20 lots is twice 0.10 lots, so one pip is 2 x KSh 129 = KSh 258. Then 15 x KSh 258 = KSh 3,870 before costs.
The same 0.20 lot trade pays a 2 pip spread. What is the net result in KSh?
The spread costs 2 x KSh 258 = KSh 516. Net result is KSh 3,870 minus KSh 516 = KSh 3,354.
Why does a position closed inside the same session avoid swap?
Swap is charged for holding a position through the overnight rollover. If you open and close before that point, the position is not held overnight, so no swap is applied.
Questions that come up next
What is the difference between a day trade and an overnight trade?
A day trade opens and closes inside one session, so the position is not held through the overnight rollover. An overnight trade stays open past that point, which can add swap and expose you to a price gap while you sleep. The difference is not the size or the instrument, it is the time the position stays open. If you set no time exit, a day trade can quietly become an overnight one.
Why does the spread cost more near the daily close?
The spread is the gap between the buy price and the sell price, and many brokers widen it near the daily close. The exact width varies between brokers and between times of day, so no single figure fits every account. On 0.20 lots, a move from 2 pips to 4 pips changes the cost from KSh 516 to KSh 1,032. The gross result does not change, so the wider spread reduces what you keep.
How do I work out the pip value for a lot size I choose?
Start from the pip value you can see on your platform for 0.10 lots, which is KSh 129 in the examples here. Multiply that by the number of times your size is larger than 0.10 lots. For 0.20 lots that is 2 x KSh 129 = KSh 258 per pip. Your broker may round the pip value, so check the contract specifications before you size a trade.
Does a broker commission change the net result?
Yes. Some brokers charge a separate commission per lot and quote a narrower spread, while others quote a wider spread with no commission. The total cost is the spread plus the commission, and it varies between brokers. Subtract both from the gross result to get the net result. Check the contract specifications for the instrument you are trading.
What should I write down before I open a day trade?
Write the price where you will close for a loss, the price where you will close for a gain, and the time you will close either way. If neither price is hit, close at the time you wrote down. This turns every outcome into something you decided before the position existed. Without a time, the session can end and leave the position open overnight.
Can I open a day trade with M-Pesa or a bank transfer?
M-Pesa and bank transfer are payment methods for moving money to and from a broker account, not for opening a position. The trade itself is opened and closed on the platform, and the deposit only sets how much is available. Payment methods, deposit times and withdrawal times vary between brokers. Confirm the details with the broker you are considering before you send money.
The words used on this page
- Swap
- A charge or credit applied when a position is held through the overnight rollover. A position closed inside the same session is not held overnight, so no swap applies. The rate varies between brokers and between instruments.
- Spread
- The gap between the buy price and the sell price on the same instrument. You pay it when you open and when you close, because you buy at the higher price and sell at the lower one. It is often quoted in pips.
- Pip
- A small unit of price movement on a currency pair. On EUR/USD around 1.0850, one pip is the fourth decimal place. The money value of one pip depends on the lot size you trade.
- Rollover
- The point at which one trading day passes to the next and swap is applied. A day trade is closed before this point. The exact time varies between brokers.
- Lot
- A standard unit of trade size. A larger lot size makes each pip worth more money, so both gains and losses move faster. The pip value for 0.10 lots is KSh 129 in the examples on this page.
- Time exit
- A clock time written down before entry, at which the position closes if neither the loss exit nor the gain exit was hit. It keeps a day trade from becoming an overnight one. The time you choose should sit before the rollover.
What to take away
- Fix the loss exit, the gain exit and the time before you open the position, so every outcome is decided in advance.
- Net result is the gross result minus the spread and any commission, and both vary between brokers.
- A wider spread near the daily close lowers the net result even when the price move is unchanged.
- A position closed before the rollover avoids swap, but it still pays the costs of entering and exiting.