Day trading is a form of stock trading in which individuals buy and sell stocks over the internet during a trading day to take advantage of small price movements. It happens in the stock markets, foreign exchange markets, or future markets. Day trading occurs when you buy or sell the same financial asset on the same day in your margin account.
Day trading is neither criminal nor dishonest. But day trading requires a complex investing strategy and is only recommended for proficient or seasoned investors.
Day trading is a legal and legitimate trading option. But most new investors don’t have the time, capital, or understanding it takes to make money sustainably from day trading and be able to continue it. Day trading from cash accounts is strictly prohibited.
This rule applies to the day trading of any asset.
What is a day trader?
A day trader is an individual that buys and sells stocks and assets to profit from short-term price shifts. As a day trader, you work up to 12 hours a week. The average working day for a day trader could be from 30 minutes to 2 hours. These traders can even use leverage to strengthen their market returns, but this can also cause their losses to be amplified.
Here are a few things about a day trader:
- Day traders spend considerable amounts of their days monitoring the markets for trading prospects and observing potentially open positions. Many of their evenings are spent investigating and enhancing their trading strategies and working on their trading skills.
- A week of work for a day trader would include trading, examining, and practicing to strengthen your trading knowledge. A day trader aims to profit from very short-term price movements requiring detailed market knowledge and a strong trading strategy.
- Day trading stocks is a capital-intensive option and can require up to a minimum of $25,000, making this not the best choice for a novice trader. Day trading in stocks is not a good choice for beginners as it requires more initial capital upfront without reassurances or fail-safes.
- Day traders rarely retain assets overnight. It is why they are termed, day traders. Making money consistently in day trading requires several skills and attributes, including knowledge, discipline, trading insight, mental strength, and experience.
It isn’t easy for beginners to execute or pick up quickly on basic tactics such as limiting losses or making profits. Also, it is difficult to sustain trading discipline due to market challenges like major losses or the market’s volatility.
A trader should also remember that day trading is a saturated market with a lot of competition. It requires going head-to-head with millions of market professionals who have access to highly developed technology, extensive market experience, and trading expertise with access to enormous capital.
An example of a day trade
An example of a day trade could be you open a new position of a certain stock at 8 in the morning by purchasing 350 shares in the stock market at a low price. After a while, the price increases, and you choose to sell the shares at a slightly elevated price (per share), leaving you with a profit and closing that exact position with that exact stock by 5 in the evening.
To conclude, a day trader is an individual investing in assets with the goal of potential profit due to small price fluctuations or movements in the stock market.