Day Trading Explained

Day trading is regarded as the active buying and selling of financial instruments such as stock, futures, options and forex currencies within the market opening and closing of a day. Day Trades are accomplished within a day, i.e. the day trader does not have any open positions once the market is closed. As a result this he is not subjected to any type of overnight trading risks. Day traders trade financial instruments with extremely small price differences. It is an energetic trading method that requires time, extreme concentration and mental strength. Day trading generally can be of two major trading strategies as momentum trading and scalping. Scalping is the trading of financial instruments in large quantities finishing each trade inside 1 minute or so. Scalpers are mainly institutional traders. Momentum trading is trading strategy stating “follow the market trend” i.e. buy when market drops and sell when market grows. Momentum traders are mainly individual traders. Other types of trading strategies, that day traders follow, include rebate trading, news playing and range trading. Day trading may be recognized as the child of today’s faster electronic networks. A good number day traders nowadays trades from a remote location like their home. They employ stand alone trading systems, direct access platforms, installed in a computer having high-speed internet connection. But for qualifying for the trades, he has to maintain a margin account in those markets he wants to trade. The day trading broker does this job for the traders; they also provide the stand alone trading systems. Apart from direct access systems, many traders provide low cost web-based systems, but they are not suitable for day traders. Day trading is available for variety of financial instruments. The popular practices include the stock day trading and the forex day trading. Other products available are options - futures options and stock options, and futures - stock futures, commodity futures, currency futures and stock index futures. Day trading is available for nearly all options, stock, and futures markets, but you may be limited with this option as generally brokers offer day trading for limited exchanges/markets. Thus the day trader must choose a market and direct access broker according to the product he is trading and his geographical location. The day trading advantages include no overnight risk, elevated profit making chance, rapid returns, high leverage, no margin interests etc. The day trading disadvantages include higher chance of loss (especially to novice traders), necessity of high concentration level and time, and mental pressure. The payoff of transaction costs and interest on margin can reduce the profit substantially.

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