What is Day Trading? |
Day trading actually refers to one of the techniques that are adopted by traders in the financial market. In essence, it means not having an open market position beyond your day trading. In other words, not taking an overnight position after the market close. This is regarded by Forex experts as the best way to trade as you are not expose to the risk of overnight trading. This is because news which can adversely affect the price of stock may filter in during the time when the market is closed for trading. As a result, those who had held overnight market position will be setting themselves up for a potential loss when the market reopens the next morning.
With regards to the Forex market, day trading takes a slightly different meaning. This is because there is actually no such thing as the Forex market closing, as trading is done 24 hours a day, thus, no overnight trading. As such you could have an open position in the market for longer than a day but with active stops in place. Nevertheless, even with stops in place, it does not guarantee that your stops can be executed at the price specified for the stops. The SEC official definition of day trading is “ the buying and selling of stocks throughout the day by those who hope that stocks will continue climbing or falling for the little time they own the stock”. It is the idea of holding stocks for a short period of time that motivates a day trader to hopefully make a fast buck.
The day trader normally deals with financial instruments which are highly liquid. These include futures, currencies, options and stocks all of which, have the ability to rise or fall within a days trading time. Day traders normally work from home and with the use of software and technology; they can also access the same market data as their counterparts in Wall Street or the trading pits.
The majority of day traders have two LCD monitors as part of their trading platform setup. One monitor will be used to keep track of chart analysis data while the other monitor will be use for active trading. Normally, the day trader works with stocks within his trading day and does not hold overnight position into his next trading day. They hold on to the “short” for only seconds to minutes. As such, they can deal with as much as over a hundred trades per day. This is one of the main differences between the typical investor and a day trader.
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