What is Day Trading?

They buy and sell several times a day, the exchange volumes very high, and therefore receive daily big discounts of the brokerage.

One day, traders focusing solely on the dynamics and trends. They are more patient and wait for a ride on the strong who can move that day. They are far fewer trades that these traders. Many day traders sell their positions before the market closes for the trading day to avoid the risk of price differentials (the difference between the day and close to the open overnight price), to open it. One day, traders say it is a golden rule to be respected at all times. Other traders think they should let the profits run, it is acceptable to stay with a position after the market closes.
Day traders often borrow money to trade. Since margins are typically charged interest on balances overnight, the additional costs also discourage them from holding positions overnight. Risks and benefits

Because of the nature of leverage and speed of returns are possible, day trading can be extremely profitable or highly profitable, and high-risk profile traders can generate huge percentage is huge percentage returns or losses. One day, the operators are able to earn millions each year, only by day trading.

Because of the high profits (or losses), which enables the trading day, these traders are sometimes described as "bandits" or "players" with other investors. Some people, however, make a consistent living day trading.

But day trading can be very risky, especially if it was bad discipline, risk or managing money. The common use of purchases on margin (with borrowed funds) magnifies gains and losses, such as losses or gains may occur in a very short time. In addition, brokers will usually from the higher margins for day traders. When the night margins required to hold a stock position are normally 50% of the value of the stock, many brokers allow pattern day trader accounts to use levels as low as 25% for purchases intraday. That means one day negotiating with the legal minimum $ 25000 in his account can buy a $ 100000 stock during the day, as long as half of those positions were released before the market close. Due to the high risk margin of the use and the other day business practices, a day trader will often leave for a losing position very quickly, in order to avoid a greater, unacceptable loss, or even a catastrophic loss, much larger than its initial investment, even larger than its total assets.

Even when one has made a profit, the trader has to compensate for transaction costs and interest on the margin. It is commonly said that 80-90% of day traders lose money. An analysis of the Taiwanese stock market suggests that "less than 20% of day traders profit net of transaction costs." History

Originally, the largest American stocks were traded on the New York Stock Exchange. An operator will contact a stockbroker, which would be about relay to a specialist on the floor of the New York Stock Exchange. These specialists to visit each market in only a handful of stocks. The specialist could correspond to the buyer with another broker seller; write tickets natural that, once treated, would have the effect of transferring the stock and relay the information to both brokers. The brokerage commissions were set at 1% of the transaction amount, ie for the purchase of a value of $ 10000 inventory costs to the buyer $ 100 in commissions.
One of the first steps to make day trading shares potentially profitable was the regime change of the commission. In 1975, the United States Securities and Exchange Commission. (SEC) has set the commission rate illegal, giving rise to a lot of brokers offering commission rate reduced.

Financial Regulations

Financial institutions to be used much longer periods: Before the early 1990's in the London Exchange, for example, the stock could be paid for a maximum of 10 working days after it was bought, which allows traders to buy (or sell) shares at the beginning of a settlement period only to sell (or buy) by the end of the period of hope for a higher (or lower) prices. This activity is identical to the negotiation of modern times, but for the longest period of settlement. But today, in order to reduce market risk, the settlement period is generally three days. Reducing the settlement period of default reduces the likelihood, but it was not possible before the advent of the electronic transfer of ownership.

The next important step in the facilitation of the day was the founder in 1971 of the NASDAQ - a virtual exchange on which the orders were transmitted electronically. Switching from paper and wrote share certificates to the registers dematerialized shares, negotiation and computerized registration not only requires amendments to the legislation, but also the development of technology necessary: online, real-time systems, rather than in batches; electronic communications rather than the postal service, telex or physical shipment of computer tapes, and the development of secure cryptographic algorithms.

This marked the advent of "market makers": the Nasdaq NYSE equivalent of a specialist. A market maker is an inventory of stocks to buy and sell, and at the same time offers to buy and sell the same title. Obviously, it will offer to sell shares at a higher price than the price at which it offers to buy. This difference is known as the "spread". It is of no importance for the market-maker if the price of a stock goes up or down, because it has sufficient capital stock and always buy cheaper than it sells. Today, there are nearly 500 companies participating as market makers on the RET, each one giving a market generally four to forty different stocks. Without any legal obligation, the market makers are free to offer small deviations ECN'sthan on the NASDAQ. A small investor might have to pay $ 0.25 spread (for example, it might have to pay $ 10.50 to buy a share of stock, but could not get $ 10.25 for sale), while the institution would only pay a spread 0.05 $ (10.40 $ buying and selling at $ 10.35).Day trading is undoubtedly very lucrative for traders willing to put the time and effort to leanring how it really works. It is not passive income. This is a career. But a very lucrative if done correctly.


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