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