1. What is day trading?

This is like regular trading in the stock market, involves the buying and selling of stocks, options, currencies and futures in the financial market with the aim of making a profit from the difference between the buying and selling price. However, it differs from the regular trading in that the positions are traded within 24 hours between the openings and closing of the market; they are rarely, if ever, held overnight.

Historically day trading as an option was available to limited financial companies such as banks. This was mainly due to the fact that these companies alone had access to the market data as also to the exchanges where the stocks were traded. The advent of technology, however, has changed the picture significantly. Individual traders too have access to the data and therefore, they can also make the same trades.

2. What are the different ways of day trading?

Depending on the individual’s personal trading style, it can be done through:

Short-term trading

Long-term trading

Short-term trading: As the name itself suggests, in short-term trading, positions are held for either a few seconds or a few minutes.

Long-term trading: In long-term trading, the positions are held for a period ranging from a few hours to the entire trading day.

Trading styles can also be classified on the basis of the direction of the current price movement of the stocks, currencies, or futures. Accordingly, these styles are:

Trend trades

Counter-trend trades

Ranging trades

Trend trades: Day traders buy when the price of the stock goes up and sell when it goes down. In other words, they trade in the direction of the movement of the prices.

Counter trades: According to this method, traders go back and forth between two prices; this generally happens when the market is moving sideways.

A day trader, depending on his requirements, can choose between any one of the styles or choose a multiple combination, depending on the prevalent market conditions. No matter which style you choose, one thing remains constant: you have to have a thorough knowledge of the financial market and an ability to make quick decision in order to reap the profits.

Finally, trading can also be classified base on the number of trades a trader makes in a day. While there may be traders who make their trades throughout the day, there may be others who wait for the best time to trade, and in some cases, make only a single trade in a day.

No matter how positions are traded, or how many trades are made in a single day the bottom line is to reap the maximum profits during the day.

3. Which are the markets for day trading?

A person can trade in stocks, currencies, options or futures. Accusingly, the financial markets for trading are: stock, currencies, options and futures. These include market based on stock indexes such as Dow Jones and the DAX, currency exchange rates such as the Euro to US Dollar exchange rate, and commodities exchange rates such as gold and oil. The day traders can access these markets through direct access brokers that provide a direct access to the exchange, and a faster trade execution at lower costs.

What are the tools required for day trading?

Given the time limited associated, it makes sense to use some tools to analyze the market and the performance of the companies whose stock you are trading in. In modern times, it is mostly electronic with the exchanges being run by computers and accessed by the individual players through the Internet. This makes it possible for day traders to operate from anywhere in the world by using a few tools such as a computer, Internet, software such as charting software and a telephone.

Author: Amit Malhotra
Article Source: EzineArticles.com
Provided by: Beading Necklace

Day trading, as the name suggests, means trading-buying and selling-the stocks on the same trading day. The trading positions, usually though not always, are closed before the market closes for the trading day.

Day trading is different from after- hours trading where the trading activity continues even after the regular marketing hours when the stock exchange closes.

Sellers and buyers who participate in day trading are called day traders. Although day trading evokes the image of a hectic trading activity in course of the trading day, it may not be so in actual practice. You may make several trades, say a dozen, in course of a trading day, or, you may limit yourself to just one trade.

You may, in some cases, just buy a stock on one day and sell it on the next day, if you think that selling it on the same day would not prove profitable. There is no legal restriction such as that you must finish off your trading activity the same day. You may, at the most, have to pay some differential on brokerage if you carry your trade to the next day.

In standard practice, traders usually tend to close their trading positions by the end of the same trading day. In any case your trading frequency depends entirely on your trading strategy for that particular day, or, your general trading style and outlook.

There are traders who focus on very short or short term trading. They finish off their trades in a matter of few minutes or even seconds. Such traders buy and sell several times a day and usually their trades consist of high volumes. They are the favorites of the brokers who reward them with big discounts on commissions.

Some traders, however, do not hanker after reduced brokerages. They focus on momentum or trends of the stock movement. They are very patient during their wait for a strong move, which may occur during the trading day. Obviously such day traders make only a few trades.

There are traders who prefer to sell off their stocks before the close of the market day to avoid the risks arising out of the price gaps between the closing price on the day they bought a stock and its opening price on the next day. They consider this practice as a golden rule and follow it almost religiously.

Other traders believe in allowing the profits to run so they stay with the position even after the market closes.

As said earlier, the number of trades you make on a trading day depends upon your trading style or trading strategies.

Profits and risks in day trading

Day traders make quick bucks and also quick losses in a matter of minutes or at the end of the trading day. Day trading may evoke the visions of gamblers gaming in casinos. There is, however, a marked difference between day trading and gambling.

While, you cannot make any calculated moves or devise any intelligent strategies in gambling, except when you are out to cheat others, day trading involves very serious understanding of the process of trading.

You study the general market trends and the movement of the stocks. You make fundamental and technical analysis and keep yourself abreast of the latest news flashes about the stocks of the companies that you trade in and much more.

Day trading is not playing a blind man’s buff or just throwing away a dice. You have to be very alert and cautious before every move. It would, therefore, be unfair to call day traders gamblers or bandits as some frustrated losers in day trading are apt to do.

Experienced and intuitive traders generate huge percentage of returns from day trading. Some stock traders manage to mint millions per year solely on the day trading. A large number of persons have successfully made day trading a sole avenue of making their livelihood.

This, however, is not to deny the risks of huge losses in day trading. Those who trade without a calculated and intelligent strategy and discipline are more likely to incur huge losses in day trading. This happens more with those who use borrowed funds, a practice known as buying on margins. They have to pay back the borrowed amounts with huge interests and other penalties if fail to make profits. This is what makes day trading really risky.

Author: Amit Malhotra
Article Source: EzineArticles.com
Provided by: Excise Tax