What is Day Trading?

Day trading is the buying and selling of stocks, currencies, and commodities with the aim of making profits from the difference between their buying and selling prices. This may sound like general trading but it differs in the time lapse between the buying and selling of stocks; currencies or stocks are rarely held overnight or when the market trading is closed for the day.

The time range can vary from a few seconds, minutes or for the entire length of the trading day depending on how the trade is doing. Also day traders may make a single or a multiple trades in the entire day.

Different Types

Day trading has different types: trend trades, counter-trend trades and ranging trades. In case of trend-trades, trades are made in the direction of the current price movements. This means traders will buy if the price is moving up and sell if it is moving down. Counter-trade, as its name suggests, means trading against the stream-buying when the price is going down and selling when the price is moving up. Ranging trade takes place when the market is moving sideways, resulting in the trades going back and forth between two prices. While most traders usually practice a single trade type, there are many who choose a particular trade type depending on the current condition prevailing in the market.

Day Trading Tools and Services

Modern day trading is conducted through exchanges that are run by computers connected to an Internet network. This has enabled day traders to work from almost anywhere in the world using tools such as telephone, trading software and charting software. Besides these, it also involves services such as brokerage and market data. These services, too, are available via the internet. Day traders place their entry and exit orders through the trading software. This software, also known as entry software, displays the current, and in some cases, the current prices for each market, be it securities, currencies, options or stocks. The charting software, on the other hand, displays the past and current market information, such as prices, in a graphical mode. The trading software usually interfaces with the entry software enabling the day trader to have a graphical view of the market.

Risks

By its very nature, day trading involves high risks. If you know the rules of the game, you can trade several times a day and make more profits than you would while trading the entire month. A note of caution is that to reap maximum benefits from it and you must ensure that your expectations are realistic. It is important to keep in mind that not every pick you make will translate into profits. Even if 60% of your picks perform well in the market, consider yourself to be on the right track. To succeed in this business, you need to be up to date with the latest market information to make the right decision.

Advantages

Day traders enable the efficient running of the financial markets via arbitrage. Besides, they provide the market with the much required liquidity.

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