Day Trading

Financial Dictionary -> Investing -> Day Trading

Day Trading (partaken by Day Traders) simply refers to the process of buying, trading and selling various financial items (such as stocks, currency on the FOREX, warrants or futures contracts and other financial instruments) in the same day before the respective market closes for the trading day. Advances in technology and internet access has made day trading a lot easier for the casual trader, but still the most common 'day traders' are large banks or investment firms who have the means to make it successful and can accurately monitor the market consistently throughout the trading day.

Day trading is considered a very strategically focused form of investment, with some traders applying several techniques to their strategy. Some traders make tens of trades a day, with some of them only lasting seconds, whilst others only make a couple of well thought out trades per day.
Day trading is very risky, with other investors labeling it as gambling more than investing. It is true that there can be huge profits made, but equally huge losses. Some traders invest with borrowed funds making it even more risky.

The main thought process behind day trading is to rapidly buy up lots of stock as its value rises throughout the day, selling it equally as quickly. Whilst others pick and choose maybe one stock over weeks of monitoring to ensure long term investment, day traders look for the quick fluctuations throughout the day to lock in quick profits.

One of the simplest techniques is to look out for stocks that have been steadily rising over a given timeframe and buy them, with the perception that it will continue to rise and you can sell it at a higher price. The idea being you sell it before it peaks. The timeframe can be as little as an hour.