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Thursday, April 9, 2020
What Is Day Trading?

What Is Day Trading?

Posted in: Day Trading
Thu, Mar 28, 19, 18:48, 1 Year ago
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Day Trading consists of buying and selling the same the same securities within one day. It's not investing per se, but capitalizing on the price movements found within a 24-hour period and making money that way.

What Day Traders Look For!

Day traders look for three elements in securities. These are:

Liquidity –easily obtained securities, so there is little lapse between purchase price when ordering and purchasing
Volatility –securities changing in value over a short time, ideal for day traders
Volume –how much a security is traded during a specific time period. Analyzing volume indicates trend health.

How Traders Choose a Brokerage

Day traders choose a brokerage based on various factors, including an easy-to-use trading platform with up-to-the-minute data. Other important aspects include:

Rates – fees for various trades eat into the day trader’s profit margin, so day traders want competitive rates
Service – customer service is crucial. Look for a brokerage with 24/7 customer service access via phone, text or email
Leverage – a borrowing amount for a margin account, expressed in ratios. A 2:1 ratio means you could purchase 100k of stock if you had 50k in your account.
Commissions – lowest commissions are not always the best – day traders want brokerages offering a discount on long-term accounts.

Types of Day Trading Orders

Market orders – buying or selling a security at an asking price.
Limit orders – buying or selling a security when the price reaches particular threshold. Buy is below the current price, while sell is above the current price.
Stop Order- the opposite of limit orders. Buy the security when the threshold is above the current price, and sell when it is below the current price.
Stop Limit Order – similar to stop orders, except it can be used at a better price than threshold.

What You Can Trade

Stocks – shares of publicly traded companies
Options – derivatives allowing purchasers a contract to buy or sell securities at a certain price at a specific time
Forex – foreign exchange markets, open 24 hours a day on weekdays, with no daily closures necessary
ETFs – exchange traded funds, securities tracking indexes, commodities or bonds, traded like securities.

Pitfalls to Avoid

When day trading, never let emotion rules your decisions. Rely on data rather than “feelings.” Learn to discipline yourself and develop a strategy. Keep good records so you can learn from your mistakes.

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