Day trading is an extremely risky way of investing in the stock market. Day trading is carried out by day traders who rapidly purchase and sell stocks over a single day period in the hope that for the very short period over which they hold the stocks (ranging from just a few seconds to a couple of hours) the value will continue to climb or fall thus allowing day traders to secure quick profits.
The method of buying and selling stocks over a very short time period can create huge profits or losses for the day trader in just a couple of minutes or hours. Statistics show that 80-90% of all day traders make a loss at the end of each trading day. However day trading has become an increasing popular form of trading in recent years as a result of the internet and increased access to information. So while day trading used to be a marginal form of stock trading reserved for the most part to financial firms professional traders and an elite group of private investors it is now also very common method of trading among casual traders.
Day traders are defined as traders who place four or more round-trip orders over a five day time period and the total trading activity over a day is 6% or more of the total value of all shares held.
Brokerage fees for day traders can be substantially lower than fees for other types of traders. While margins for most traders are usually around 50% of the value in traders account, day traders can face levels as low as 25%. This means that a trader can by lets say, $1000 worth of stock from an account of only $250.
Tips for success
The five most common strategies adopted by day traders who seek to make are profit are
* Trend following - used by all trading firms this strategy assumes that stocks that having been rising steadily will continue to rise.
* Playing news - this strategy is to buy stock in a company which has just announced good news
* Range Trading - this is where stock that has been rising and falling is bought near the low price and sold as it hits the high price range.
* Scalping - it is commonly defined as a very quick trade.
* Covering spreads - To play the spread or the make the spread simply means to buy stock at the Bid price and sell the stock at the Ask price. The difference between the bid price and the ask price is known as the spread. Because there is an historical tendency for the stock market to rise profit can be expected for this form of trading.
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