You Should Know the Facts about Day Trading

Day trading involves purchase and sale of stocks, futures, options and currencies in a trading day. This implies that no trade should be left uncompleted at the end of the day. This is to remove the overnight risks that may be associated with positions left open at the close of the market. Making day trades may be considered by some individuals as a vigorous activity, and requires a high degree of concentration as well as time devoted to it within the trading hours.

There are two categories into which day traders can be classified into. These categories are scalper traders and momentum traders. The former category refers to those who make their trades in larger quantities and complete each of these trades within minutes or even seconds. As the number of trades taking place within a short time is large, a huge amount of money is usually required, one which is normally available among big financial firms. Momentum traders on the other hand take place in smaller volumes and are done by individual traders who make use of stock market trends in placing their trades. Market condition usually determines the volume of trades done by momentum traders.

A lot of day traders make their trades from distant locations for example from their homes or work areas, using a trading software to have access to the trading platform. A margin in the market is required to be maintained by a trader before such a trader can be qualified to place a trade. In order to maintain this margin, the services of a broker are required. Access to the trading platform is also provided by the broker.

An important resource needed by a day trader is access to market information. Knowing the correct market trend not only enables a trader to know products the best products to trade in but also to assist the trader to make more profits. Not only is the knowledge of market information important, but having access to real time information could be the difference between making profit or loss. More advanced trading platforms make this information available in the form of graphics and make use of triggers to automatically make trades.

A number of products are available for trades, the most common ones being stock and forex currencies. A trader must ensure that the markets chosen to trade in are in line with their financial status, their preferred trading system and their geographical location.

Day trading has a number of advantages. Some of these advantages include high chance of making big profits, overnight risks are non-existent, the leverage is high, the returns are quick. There are also disadvantages associated with it. Since there are high chances of making large profits, these chances if not utilized properly could also result in huge losses, most especially among traders who are still new to the game. Another disadvantage is the high level of concentration required as well as the time. An estimated eighty percent of day traders encounter losses and have to deal with them.

 

Tags: Day trader, Day trading, Electronic trading platform, Foreign exchange market, trader

Category: Investing