| Day trading refers to the practice of | | | | discipline, risk or money management[3]. |
| buying and selling financial instruments | | | | The common use of buying on margin (using |
| within the same trading day such that all | | | | borrowed funds) amplifies gains and |
| positions will usually (not necessarily | | | | losses, such that substantial losses or |
| always) be closed before the market close | | | | gains can occur in a very short period of |
| of the trading day. Traders performing | | | | time. In addition, a broker usually |
| day trading are called day traders. | | | | allow more margins for daytraders. Where |
| Some of the more commonly day-traded | | | | overnight margin required to hold a stock |
| financial instruments are stocks, stock | | | | position is normally 50% of the stock's |
| options, currencies, and a host of | | | | value, many brokers allow pattern day |
| futures contracts such as equity index | | | | trader accounts to use levels as low as |
| futures, interest rate futures, and | | | | 25% for intraday purchases. That means |
| commodity futures. | | | | even a day trader with the minimum |
| Trade frequency | | | | $25,000 in his account can buy $100,000 |
| Although collectively called day | | | | worth of stock during the day, as long as |
| trading, there are many sub-trading | | | | half of those positions are exited |
| styles within the whole "day trading" | | | | before the market close. Thus a day |
| tree. A day trader is not necessarily | | | | trader has to admit mistakes quickly and |
| very active. Depending on one's trading | | | | cut losses fast when the market goes |
| strategy, it may range from several to | | | | against a position. Even when a position |
| even a hundred orders a day. | | | | is in profit the day-trader needs to be |
| Some day traders focus on very short or | | | | careful since the profit plus any |
| short-term trading, in which a trade may | | | | dividend has to offset the transaction |
| last seconds to a few minutes. They buy | | | | costs and the interest on the margin[4]. |
| and sell for many times, making very high | | | | It is commonly stated that 80-90% of day |
| trading volume daily and receiving very | | | | traders lose money. An analysis of the |
| deep discounts from the brokerage. | | | | Taiwanese stock market suggests that |
| Some day traders focus on momentum or | | | | "less than 20% of day traders earn |
| trend only. They are more patient and | | | | profits net of transaction costs". |
| wait for a ride on the strong move which | | | | Popularity |
| may occur on that day. They make far | | | | Day trading used to be the preserve of |
| fewer trades than the abovesaid day | | | | financial firms, professionals, some |
| traders. | | | | savvy private investors and speculators. |
| Overnight position | | | | Many day traders are professional bank or |
| Traditionally it is suggested day | | | | investment firms employees working as |
| traders should always settle their | | | | specialists in equity investment and fund |
| positions before the market close of the | | | | management. |
| trading day to avoid the risk of price | | | | One of the first steps made day trading |
| gaps (price differences between previous | | | | of shares potentially more profitable is |
| close and next day open that it looks | | | | to change commission scheme. In 1975, the |
| like a "gap" between price activities) at | | | | Securities and Exchange Commission made |
| the open. Some day traders consider this | | | | fixed commissions illegal, giving rise to |
| as a golden rule which have to stick | | | | discount brokers offering much reduced |
| with firmly and strictly all the time. | | | | commission rates. |
| It is thought this rule goes against | | | | Electronic developments further helped |
| traditional market wisdom, "let the | | | | to promote day trading. One important |
| profit run". Prematurely closing a | | | | step in facilitating day trading was, |
| position is equal to not letting your | | | | therefore, the founding in 1971 of NASDAQ |
| profits run. Thus some day traders | | | | -- a virtual stock exchange on which |
| advocate it is okay to stay with a | | | | orders were transmitted electronically. |
| position after the market close as long | | | | Moving from paper share certificates and |
| as it is still in a winning position with | | | | written share registers to |
| the trend on your side. | | | | "dematerialized" shares, computerized |
| Some day traders borrow money to day | | | | trading and registration required not |
| trade. Since margin interests are | | | | only extensive changes to legislation but |
| typically only charged on overnight | | | | also the development of the necessary |
| balances, the extra costs discourage them | | | | technology: online and real time systems |
| to hold positions overnight. | | | | rather than batch; electronic |
| Profit and Risk | | | | communications rather than the postal |
| Due to the nature of leverage and rapid | | | | service, telex or the physical shipment |
| returns, day trading can be extremely | | | | of computer tapes; the development of |
| profitable and high-risk profile traders | | | | secure cryptographic algorithms etc. All |
| can generate huge percentage returns. | | | | have been materialized. |
| Some day traders can manage to earn | | | | Day trading has become increasingly |
| millions per year solely by day | | | | popular among casual traders due to the |
| trading.[2] | | | | advance in technology, new facilities |
| Nevertheless day trading can become very | | | | offered cheaply, and the popularity of |
| risky, especially if one has poor | | | | the Internet. |
