What is Day Trading?
Day Trading is when someone tries to make a profit by rapidly trading many securities with positions lasting just hours or minutes. These trades are known as intra-day trades because a day trader will not hold positions overnight.
Day trading is easy. It requires in-depth understanding of markets, advanced real-time data, and complete focus. Day traders will usually continually monitor their positions while they are open. This is why positions last just a few hours and are usually closed before the closing bell.
Trading commissions and expensive analysis tools handicap day traders which is why day traders must make large investments even when getting started. To be successful at day trading it has to be a full-time job.
Day-Trading vs Swing Trading
Swing-Traders, like day-traders, seek to make large profits from short-term stock movements as opposed to long-term investments. Both strategies have pros and cons.
Swing Traders hopes to take advantage of changes in securities' prices over a few days to several weeks. Due to these slightly longer term investments, swing trading is less likely to become a full-time career like day-trading.
The reasons people start day trading are obvious. The potential for huge monetary gains draw in investors from all over the globe. With the introduction of Electronic Communication Networks (ECNs) into the stock trading world in the late 90's, investors no longer need to be on the market floor to place trades. Now investors can place trades almost instantly from anywhere in the world.
In addition to the large potential gains, you also get to be your own boss. However, you are still tied to working certain hours when the stock market is open.
How to Day-Trade
Getting started day trading is easy. All you need to do is set up an account with a reputable online brokerage firm. Staring a trading account is a lot like opening a bank account. It requires some personal information and an initial deposit.
Once you account is opened and funded you will be able to begin trading immediately. Be sure to compare the fee structures of the different online brokers. Many exchanges will give you free trading for a certain amount of time or they might give you your first couple trades free. Fees depend upon several factors but $10 to $20 per trade is average.
To be a successful day-trader, you have to study the market diligently and make timely, accurate decisions every time. Day trading is not for the faint of heart.
Risks of Day-Trading
Any investing involves risk and the higher the potential rewards, the larger the risk in the investment. Day-trading has one of the largest potential returns on investment and is one of the riskiest kinds of investing.
The market is unpredictable and there is no going back after a trade has been placed. You always trade at your own risk and risk losing everything you invest.
Day traders are competing against high-frequency traders, hedge funds, and other market professionals. US Securities and Exchange Commission warns that "days traders typically suffer financial losses in their first months of trading, and many never graduate to profit-making status."
However, the rewards of successful day trading can be great and many people choose to make it their full-time career.