Question ~ What Is Day Trading, in Simple Terms?
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Answer: What is day trading, in simple terms?
Day trading is buying and selling financial instruments very quickly, sometimes within minutes. Day traders do not hold the securities as an investment.
Day traders can trade stocks, stock options, currencies, and futures contracts. Their objective is to make a small amount of money on each trade, and to trade frequently. Often they close their positions before the end of the trading day, and hold no securities overnight.
Day traders use Electronic Communication Networks, abbreviated ECN, large proprietary computer networks designed for trading. Day traders have accounts with direct access brokers who allow the trader to send their orders directly to the ECNs. Direct access trading systems use trading software and high-speed computer links to stock exchanges such as NASDAQ, NYSE and the various electronic communication networks. With direct access trading systems, transactions are executed in a fraction of a second and confirmations are instantly displayed on the trader's computer screen. A day trader may choose to send his orders to any specific market maker, specialist, or electronic communication network. Day traders do not use retail brokers because they are slower to execute trades and charge higher commissions. A day trader may pay a commissions as low as $.005 per share traded. Day traders rely on a real-time data feed, rather than delayed prices. Some day traders use sophisticated trading systems and software.
Day traders use many techniques find trades and make money. They may rely on technical analysis and charting. They may trade to follow the price trend, or they may anticipate a reversal of the price trend. They may trade short, which means selling shares they don't own, by borrowing shares from the broker. They can trade by watching prices bounce in a narrow range, or they can trade when prices break out of the trading range. They may be paid rebates by adding to the liquidity of the markets. During market volatility, they may use scalping to trading to take advantage of small price gaps in the bid-ask spread. They may trade on the basis of breaking news. They follow the price movement, chart patterns, trading volume and raw market data to find their trades. They may use computer trades generated by automatic algorithms.
There are as many trading techniques as there are day traders. But the risk of day trading is suitable only for experienced traders.
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