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What Is Day Trading?

What is day trading in relation to trading in the stock market? A day trader is a trader who quickly buys and sells shares of stock on the market, with the hope that for the very short time, usually seconds or minutes, the stock will continue up or down. This results in quick profits for the day trader when it is done successfully. Day traders are usually using money that is borrowed, with the hope that using leverage will increase their profits, but this creates a much higher risk as well. The financial losses that occur every day from day trading make this an extremely risky venture, and most day traders never reach the point where they reap large profits from their ventures. In the first few months as a day trader, it is normal to suffer huge financial losses, so only use risk capital for any day trading. This is money that you can afford to lose.

Day traders do not invest money into stocks, they watch their computer for stock that is on an upward or downward move, buy the stock hoping that this trend will continue, and then sell the stock very quickly. If the trend continues while the day trader owns the stock, then they make a profit from the sale that the trader keeps. The risks involved in day trading can be substantial. By using borrowed money for leverage, day traders take a risk that the market will turn, which could leave the trader broke and owing money that was borrowed. This is a very real risk, and it is important that day traders understand that there is no guarantee or security net in day trading.

Day traders do not keep possession of stocks overnight, because the price of a stock can fluctuate widely by the next day, and this can lead to even bigger losses in the day trading market. Day trading is an extremely risky venture, as well as expensive and time consuming. Day traders watch their computer screens the whole time the market is open, watching for stocks that are rising or falling. The day trader purchases the stock hoping that the trend continues for a short period, then they sell the stock quickly. A bigger potential for profit is realized by using borrowed money as leverage, but this also greatly increases the risks as well. Day trading should only be done with income that can be lost without any adverse effect. The day trading market has a huge amount of risk involved, and severe financial losses are very common in the first few months. Copyright 2007 Joel Teo. All rights reserved.


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