Day Trading Stocks

Day trading is defined as the buying and selling of a security within a single trading day. Day trading is a strategy for playing the stock market, where "playing" means trying to make money. Day trading is designed to produce short-term profits. Day trading is clearly a phenomenon of our times. Day trading is not appropriate for all investors. The profit potential of day trading is perhaps one of the most debated and misunderstood topics on Wall Street. Due to short time lines that prevent any company research or other traditional stock analysis tools, day trading is often regarded to as more like gambling than investing.

Day trading demands access to some of the most complex and sophisticated financial services and instruments in the markets. Trading with a stop-loss is extremely important for all traders to cut losses while they are still small, and to preserve their trading capital in case the market moves against their trade. Trading at certain times of the day is simply not profitable and in fact is highly risky. Day trading stocks, options, futures or forex is a challenging and potentially profitable activity for the educated and experienced investor, swing trader or day trader. There are those who engage in day trading without sufficient knowledge or training. In fact some will admit to trading only because it gives them a gambler's high. There are several different strategies that day traders utilize including: swing trading, arbitrage and "trading the news" among others. Giant Wall Street firms and hedge funds have massive trading desks that do this. Day trading involves taking advantage of price movements in stocks within one trading day. Day trading strategies demand the use of leveraged or borrowed money to make profits. Day trading used to be the sole preserve of financial firms and professional investors and speculators. However, day trading has become increasingly popular among casual traders due to advances in technology, changes in legislation, and the popularity of the Internet. Depending on one's trading style and strategies, the number of trades made in a day may vary from one, to dozens or more. Some day traders manage to earn millions per year solely by day trading.

Scalping is a trading style where small price gaps created by the bid-ask spread is exploited. The basic idea of scalping is to exploit the inefficiencies of the market when volatility increases and the daily trading range expands beyond what one would consider normal. Some day trading strategies (including scalping and arbitrage) require relatively sophisticated trading systems and software.

Traders that participate in day trading are called day traders. Traders work for themselves and on their own terms. Traders buy stocks, options, futures, or forex and try to sell them quickly in order to make a profit. Typically, day traders are well educated and well funded. These traders are typically well-established in the field and have in-depth knowledge of the marketplace. Most day traders who trade for a living work for a large institution. Day traders seek to make profits by leveraging large amounts of capital to take advantage of small price movements in highly liquid stocks or indexes. Day traders will typically close out all their positions by the end of the day, especially traders trading on margin or high leverage.

It is crucial that day traders have access to real time market quotes and activity because fluctuations in price can make or break a day trader if an order is delayed only seconds. Day traders must watch the market continuously during the day at their computer terminals. Many day traders use multiple monitors or even multiple computers to execute their orders. Day traders depend heavily on borrowing money or buying stocks on margin. Many day traders sell their positions before the market closes for the trading day to avoid the risk of price gaps (differences between the previous day's close and the next day's open price) at the open. Some day traders consider this to be a golden rule to be obeyed at all times. Because of the nature of financial leverage and the rapid returns that are possible, day trading can be extremely profitable (or extremely unprofitable), and high-risk traders can generate huge percentage returns (or huge percentage losses). It is commonly stated that 80-90% of average day traders lose money.

Day trading is about risk taking not gambling. Day trading is not a get-rich-quick scheme for the average person, even though some seminars do their best to promote it as one. Day trading is however a mentally and psychologically challenging activity and is by no means meant for everyone. If you can't be highly disciplined and stick by predetermined selling points, day trading is not for you.

Written by Larry Schade on the topic of "Day Trading". Get information on Investing here: Investing