What is Day Trading? Here's a Quick Overview

Day trading used to be reserved for a few investors with larger banks and financial corporations. However, with the advances in technology and the relaxing of laws, day trading has become popular with more casual traders. Here's a quick overview of what day trading is all about.

At its most basic day trading is the act of trading in a single day. That's why it's called "day trading". Though some day traders may let their trades ride overnight, the vast majority of day traders will not. This is because they don't want to assume any losses that might occur overnight. Plus most traders borrow on margin and usually interest on margins is only charged overnight. Therefore, traders avoid paying interest by not keeping any margins overnight.
Day traders trade a variety of financial instruments such as stocks, currencies, and many types of futures. To increase their ability to make money day traders will use margin. This means they can trade a lot more then they actually invest. For example, a day trader can put down $1000 of her own money and borrow $99,000 on margin. This will allow her to trade $100,000 with the $1000 being used to cover any potential loses.

Some day traders will trade only a couple times each day while others will make dozens of trades. It all depends on the trader. Similarly, some trades will only be kept for seconds while others may be kept for hours.

There is a potential for huge profits and huge loses in day trading. People make millions of dollars every year doing this but others have had their careers and their personal lives ruined because of day trading.

So that's a quick overview of what day trading is all about. While it's possible to make a lot of money it's also possible to lose a lot of money. So make sure you know what you're doing before you actually begin trying your hand at day trading.

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