Day Trading, also know as Intra-Day trading, is the system where traders buy’s financial securities and sell the same before the end of that day’s trading session. In other words it is the act of buying and selling of various securities within the same day with the expectation making a profit for yourself in that buy-sell or sell-buy exercise. All in one day. Traders that participate in day trading are called active traders or day traders. All a day trader needs to do is to predict is that the stock price will either rise or fall very sharply in the course of the day and can place anywhere from one to thousands of trades per day with the goal of making a profit from the difference between the buying price and the selling price.
Day trading is considered to be the safest way to do trading because you are not exposed to the potential losses that can occur when the stock market is closed due to news that can affect the prices of your stocks. On the other hand it is considered as extremely risky and as it can result in substantial financial losses in a very short period of time. Some of the more commonly day-traded financial instruments are stocks, stock options, currencies , and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures. For Example, On Monday, 500 shares of ABC stock are purchased. Later on that same day, 500 shares of ABC stock are sold. This is considered to be a day trade.
Day Trading Styles
There are two main types of day trading and they can be summarized as follows:
Day Trading ‘Scalpers’
Scalpers are traders that buy and sell large numbers of stocks repetitively over very short periods i.e. seconds or minutes. The objective is to earn a small per share profit on each transaction while minimizing the risk.
Day Trading – ‘Momentum Traders’
In momentum trading, only stocks that are in a moving pattern throughout the day are traded. This type of day trading seeks to buy when stocks are at their lowest prices and sell them when they are at an all-time high.