Definition Of Day Trading

By Author: Samantha Dale
Total Articles: 610
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The novice trader absolutely does not care for volatile markets, as trends are practically impossible to track and chart.

On the other hand, the professional trader just loves the said volatility for the same reason, as they feel they know how to make money in any market. Calling the correct turning points before they actually happen and you have the foundation of a successful and profitable trade is their motto. Professional traders also are confident of their discipline as well as their perceived control of greed and fear, traits that absolutely are required of successful day traders in particular. In other words, total self-control.

Day trading is the practice of buying and selling any security, including futures, options, currencies or stocks, and hopefully making a profit between the buying and selling prices. The same definition of course applies to any type of trading in general but the big caveat of day trading is that positions are very rarely, if ever, held overnight. All positions for the most part are closed at the end of the trading day.

This form of trading used to be the exclusive province ...
... of financial companies, professional investors and speculators. Typically, these traders worked for banks and investment firms in areas such as equity investment or fund management.

But with the advance of electronic trading, day trading has become increasingly popular with individuals working from home, as they can now easily access the same exchanges and market data as professionals.
Trading on a daily basis has been touted as a trade that carries low costs, affordable to the individual without a huge stash of cash, and indeed the transaction costs per trade seem to be insignificant at first glance but are fixed. When you combine the broker fee to the slippage (loss incurred when the position is closed at a lower price than you had hoped for) which can be quite common, the total transaction costs can be exorbitant since the day trader focuses on smaller price movements, thereby producing smaller profits.

Margin trading in general is considered risky business but it is almost the lifeblood of day trading. That is why day traders can focus on even very small price moves, hoping that their total profit can be magnified by the margin position employed. In that context, The SEC (U.S. Securities and Exchange Commission) does not even consider day trading as investing but rather just pure speculating.

However, there are advantages that can be debated.

Since the day trader stays in the market for such a very short period of time, there is a corresponding lower possibility of adverse events disrupting the market and by the same token adversely affect open positions. This is the greatest benefit cited by day traders as they can go to sleep at night without having to worry about the possibility of suffering a loss the next day.

Another benefit is called instant gratification, which for some people is considered an extremely valuable state of mind.

Overall, day trading is definitely not for the faint hearted or quick of temper.

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