Anyone involved in day trading stocks is in a high risk venture. Day traders spend all day on the computer and/or on the phone buying and selling stocks on the open market. Day trading is what some people refer to as playing the stock market. It is a consuming task that is not for the faint of heart. Day traders literally scour the financial information that they have access to in order to give them some type of convincing tip to either beat the spread or catch a short term trend. In beating the spread, a trader is trying to make money by buying stock that is being sold at one price (called the bid) and selling the same stock in a short amount of time to people willing to buy at a higher price (referred to as the ask). A trader who uses this strategy could conceivably make hundreds of trades daily. The amount of money made really depends upon the spread between the bid and the ask.
Another strategy practiced in day trading stocks is called swing trading. This methodical technique involves following technical indicators that imply that a trend may begin or may soon be ending. Swing trading is based on mathematical calculations. This method does not require as many transactions as the spread method to return similar results. Companies like Reuters and Island ECN, that allow online and after hour trading, using a technology called electronic communication networks make a trader's job faster and easier. These ECN's provide all types of information for day trading stocks. And because there is no personalized service involved in most transactions, ECN's often provide financial incentives for people to use them for trading; instead of the traditional methods. Frankly, there are some cases that a day trader can actually profit from buying and selling a stock at the same price.
There are typically two categories of investors that perform these stock trades daily. The first type is the individual who works for a bank or brokerage house. His or her title might be that of stockbroker, analyst, or account manager. The other is the person who has his own personal money to invest. The responsibility of the person, whose job is day trading stocks, is to act as a liaison between those people who want to buy stocks and those who want to sell. This person must pass a comprehensive six-hour examination, with a score of 70% or better, in order to become qualified to work in this arena. The General Securities Representative test, commonly known as the Series 7 Exam is administered by the Financial Industry Regulatory Authority. The test covers a broad range of topics including: business development, client needs assessment, making buy-sell recommendations, processing orders, and monitoring economic and financial events. Upon a passing score on the examination, the person become a Registered Representative or a Stockbroker. A stockbroker is licensed to sell securities and also to act as an agent. The payment for this work is a commission earned on a per transaction basis. Many brokers also charge additional fees for transferring assets, closing an account, and even the wiring of money.
There are basically three levels of authority that an agent can exercise. Some agents do the actual trading for their client including making all the decisions and just informing the client periodically about what they are doing or; give information to their client and leave the final buying and selling decisions to the client; or perform the exact buys and sells as directed by the client. When day trading stocks for a client who has given the broker free reign, it is imperative that the agent knows, very intimately, what the client wishes to accomplish, what transactions the client is comfortable with, and what the client's expectations are for each and every transaction. This type of trading carries with it a great amount of authority as well as enormous responsibility.
Another level of authority is advisory dealing. The broker advises the client to buy or sell securities based on convincing evidence that is shared with the client. The client then makes the ultimate decision about what they want to do. There is more of a shared since of responsibility with this level of dealing. The level of dealing with the least amount of authority for day trading stocks is called execution only. Execution only refers to an agent who does exactly what the client asks; no more, no less. At the end of the day, only the client bears the responsibility of the end result.
When a person is investing their own money, they are able to purchase stocks using a broker who has execution only authority. Because day trading stocks is such a risky undertaking it is critical for one to be extremely adept at making good decisions based on the most accurate information available at the time. To accomplish this, an investor trader may look at historical charts; using past performance to project the future performance of a stock pick. Some stock marketers join stock picking investor groups and together they discuss and come to some conclusions about the value and the future potential value of a certain stock. These traders also are very adept at looking for buy and sell price levels. They will buy a stock only if the price is below a certain level and sell a stock only above a particular level.
There are so many ways to do investing and so many experts doing it that no one can say "this is the way you do it." Having a plan will give a person a better chance of meeting their financial goals. "Then he that had received the five talents went and traded with the same, and made them other five talents." (Matthew 25:16). Because day trading stocks is a high risk activity; knowledge, education, wisdom, and intuition are major factors that should always be at the fore of any financial activity.
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