Day trading

DEFINITION of day trading

Day trading is speculation in securities, specifically buying and selling financial instruments within the same trading day.

WHAT IT IS IN ESSENCE

Strictly, this is trading only within a day, such that all positions are closed before the market closes for the trading day. Many traders may not be so strict or may have day trading as one component of an overall strategy. Traders who participate in day trading are called day traders. They trade in this size with the intention of profit. So, they are therefore speculators. These are methods of quick trading contrast with the long-term trades underlying buy and hold and value investing strategies.

Some of the more commonly day-traded assets are stocks, options, currencies, and a lot of futures contracts such as equity index futures, interest rate futures, currency futures, and commodity futures.

Day trading was once an activity that was exclusive to financial firms and professional speculators.

Many day traders are bank or investment firm employees working as specialists in equity investment and fund management. With the advent of electronic trading and margin trading, day trading has become available to private individuals. Today, it is a short-term strategy that involves closing out all trades before the market closes. That’s why day traders tend to have no open positions held overnight. Some day traders use an intraday technique known as scalping that usually has the trader holding a position for a few minutes or even seconds.

Some traders exit positions before the market close to avoid bulky risks, negative price gaps between one day’s close and the next day’s price at the open. Another reason is to maximize this way of trading is to buying capacity. Other traders believe they should let the profits run, so it is acceptable to stay with a position after the market closes.

HOW TO USE

Day traders sometimes borrow money to trade. This is margin trading.

Margin interests are typically only charged on overnight balances. So the trader may pay no fees for the margin benefit, though still running the risk of a margin call. The margin interest rate is usually based on the broker’s call.

Day trading requires focus and dedication, also, fast decisions and executing a large number of trades are. Traders don’t need to trade all day, but they have to to stay careful and in advantage.

Well, day traders think differently from investors because buying low and selling high is not always in their best interests. CFDs and spread bets are both useful products as financial derivatives, they can be used to take both long and short positions on various markets.