What is Day Trading?

During the dot com era of the late 1990s a 20th century version of the California gold rush emerged as literally tens of thousands turned to the stock market lured by hopes of freedom and easy money. The vast majority of these hopefuls employed the technique now commonly known as day trading. Day trading simply and correctly implies that investment positions are opened and closed during the same day. Day traders may buy a stock in the morning with the hope of selling it later in the day for a profit. Likewise, positions may be held open for a few hours, or day traders might buy a stock and sell it only minutes or even seconds later. In general, they do not hold a stock they have purchased overnight. A day trader’s primary focus is to profit from daily market swings. How Much Can I Make? Most who consider day trading as a career approach the subject with unreasonable expectations. It’s not hard to understand why since there is no shortage of advertisements on television and on the internet promising outlandish returns. Consider the fact that a mutual fund manager that consistently earns 40% returns per year for her clients would probably be afforded guru status among those who have been in the business for a while. Also consider the fact that mutual fund managers have access to much better information and are more experienced than the average retail day trader. There are day traders who are making annual returns of 70%-100% or more, but it is unlikely that an inexperienced trader can expect these types of returns their first year out. Build a Foundation Before You Begin Trading As with the late 19th century Californian gold rush, a few struck it rich and the majority lost money. The reality of day trading is that there are inherent risks and the unprepared are especially vulnerable to losing money. This profession is not for the faint at heart nor is it for the risk averse. Likewise, day trading is not a profession for the uninformed. Success takes knowledge, money, a good strategy and deep commitment. Simply opening a brokerage account and buying stocks without a plan for where to get in, where to get out and what to do if something goes wrong is a sure fire recipe for disaster. rnEvery buy in the stock market has a seller on the other side and every sell in the market has a buyer. Those who are unprepared to compete in this zero-sum environment very often find out the hard way that competition is fierce. To be successful you have to be smarter than your competitor because in reality you are in a competition to take their money away from them and they are trying to take your money away from you. If you are just getting started make sure that you are committed to spending the time and energy necessary to learn your new trade and to develop your skills. Before you run out and open an account with your online broker and start throwing money at the market in hopes of making your millions, it is important to build a foundation of knowledge, make sure that you are properly equipped and make sure that you have explored the advantages and disadvantages. Following is a list of the very basics you will need to know, acquire and consider before you risk even one dollar in the market. Pros and Cons of Day Trading The business of buying and selling stocks and other investments throughout the day can be exciting, risky, rewarding and freeing. Day trading offers unlimited potential profits, but it also exposes one to high amounts of risk. When deciding whether or not to commit to this profession it is wise to look at the advantages and disadvantages to determine if one is ready and willing to take the plunge. Forex Despite popular misconception, it is not possible to get started in the business of day trading without first gaining some foundational skills and preparing the proper tools. Before even considering risking one’s money by day trading, it is essential to gain a proper understanding of the subjects in this article. Equipment Up until the last decade or so, access to the market and market data was limited to well-capitalized, large brokerage firms. In the internet age, information that was only available to the privileged few has now been made available to the masses, putting everyone on pretty much an equal playing field. Software and hardware needed to get started in the day trading business is widely available and relatively cheap.