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This article is about the practice. For the occupation, see 1.1 Prot and risks
Day trader.
Because of the nature of nancial leverage and the rapid
returns that are possible, day trading results can range
Day trading is speculation in securities, specically buyfrom extremely protable to extremely unprotable, and
ing and selling nancial instruments within the same
high-risk prole traders can generate either huge percenttrading day. Strictly, day trading is trading only within
age returns or huge percentage losses. Because of the
a day, such that all positions are closed before the market
high prots (and losses) that day trading makes possicloses for the trading day. Many traders may not be so
ble, these traders are sometimes portrayed as "bandits"
strict or may have day trading as one component of an
or "gamblers" by other investors.
overall strategy. Traders who participate in day trading
are called day traders. Traders who trade in this capacity Nevertheless, day trading can be risky, especially if any
of the following is present while trading:
with the motive of prot are therefore speculators.
Some of the more commonly day-traded nancial instruments are stocks, options, currencies, and a host of
futures contracts such as equity index futures, interest rate
futures, and commodity futures.
inadequate risk capital with the accompanying excess stress of having to survive,
incompetent money management (i.e. executing
trades poorly).[2][3]
The common use of buying on margin (using borrowed
funds) amplies gains and losses, such that substantial
losses or gains can occur in a very short period of time.
In addition, brokers usually allow bigger margins for day
traders. In the USA for example, while the overnight
margins required to hold a stock position are normally
50% of the stocks value, many brokers allow pattern day
trader accounts to use levels as low as 25% for intraday
purchases. This means a day trader with the legal minimum $25,000 in his or her account can buy $100,000 (4x
leverage) worth of stock during the day, as long as half of
those positions are exited before the market close. Because of the high risk of margin use, and of other day
trading practices, a day trader will often have to exit a
losing position very quickly, in order to prevent a greater,
unacceptable loss, or even a disastrous loss, much larger
than his or her original investment, or even larger than his
or her total assets.
Characteristics
2.1
Financial settlement
Financial settlement periods used to be much longer: Before the early 1990s at the London Stock Exchange, for
example, stock could be paid for up to 10 working days
after it was bought, allowing traders to buy (or sell) shares
at the beginning of a settlement period only to sell (or
buy) them before the end of the period hoping for a rise
in price. This activity was identical to modern day trading, but for the longer duration of the settlement period.
But today, to reduce market risk, the settlement period
is typically three working days. Reducing the settlement
period reduces the likelihood of default, but was impossible before the advent of electronic ownership transfer.
2.2
HISTORY
In the late 1990s, existing ECNs began to oer their services to small investors. New brokerage rms which specialized in serving online traders who wanted to trade
on the ECNs emerged. New ECNs also arose, most
importantly Archipelago (arca) and Island (isld).
Archipelago eventually became a stock exchange and in
2005 was purchased by the NYSE. (At this time, the
The next important step in facilitating day trading was the NYSE has proposed merging Archipelago with itself, alfounding in 1971 of NASDAQa virtual stock exchange though some resistance has arisen from NYSE members.)
3
Commissions plummeted. To give an extreme example
(trading 1000 shares of Google), an online trader in 2005
might have bought $300,000 of stock at a commission
of about $10, compared to the $3,000 commission the
trader would have paid in 1974. Moreover, the trader
was able in 2005 to buy the stock almost instantly and got
it at a cheaper price.
ECNs are in constant ux. New ones are formed, while
existing ones are bought or merged. As of the end of
2006, the most important ECNs to the individual trader
were:
Instinet (which bought Island in 2002),
Archipelago (although technically it is now an exchange rather than an ECN),
the Brass Utility (brut), and
of the less-experienced traders went broke, although obviously it was possible to have made a fortune during that
time by shorting or playing on volatility.
In parallel to stock trading, starting at the end of the
1990s, a number of new Market Maker rms provide
foreign exchange and derivative day trading through new
electronic trading platforms. These allowed day traders to
have instant access to decentralised markets such as forex
and global markets through derivatives such as contracts
for dierence. Most of these rms were based in the UK
and later in less restrictive jurisdiction, this was in part
due to the regulations in the US prohibiting this type of
over-the-counter trading. These rms typically provide
trading on margin allowing day traders to take large position with relatively small capital, but with the associated
increase in risk. Retail forex trading became a popular
way to day trade due its liquidity and the 24-hour nature
of the market.
3 Techniques
The following are several basic strategies by which day
traders attempt to make prots. Besides these, some
day traders also use contrarian (reverse) strategies (more
commonly seen in algorithmic trading) to trade specifically against irrational behavior from day traders using
these approaches. It is important for a trader to remain
exible and adjust their techniques to match changing
market conditions.[4]
3.2
Contrarian investing
3.3
Range trading
TECHNIQUES
3.5
Rebate trading
4.4
3.8
Spread
Candlestick charts
3.9
Articial intelligence
Cost
4.1
Trading equipment
4.2
Brokerage
4.3
Commission
Day trading is considered a risky trading style, and regulations require brokerage rms to ask whether the clients
understand the risks of day trading and whether they have
prior trading experience before entering the market.
EXTERNAL LINKS
6 See also
Direct access trading
Extended hours trading
Financial instruments
Fundamental analysis
5.1
Futures market
Scalping
5.2
Stock market
Technical Analysis
Trader
Trend following
Day trading software
Price discovery
Intraday candlestick chart by looking at price movements can analyse a raw way.
Trend lines and triangular formations using the instant you can obtain information about the price
movements.
Particularly at what point and at what point are you
going to determine the volume of transactions in ascending or descending order to observe. The candlestick chart formations when used in an appropriate
manner will show you the most reliable entry point.
Scalping is one of the most popular strategy. This
strategy is also a process to become protable is replaced immediately with the direction of the position.
[11]
[6] http://www.forextradingonline.com/
forex-trading-course/range-trading.html
[7] Type of Day Trader. DayTradeTheWorld. Retrieved
11 August 2014.
[8] Charles Duhigg. Articial intelligence applied heavily to
picking stocks - Business - International Herald Tribune.
November 23, 2006.
[9] Exchange Requirements for Delayed Market Data
[10] Website that explains NASD Rule 2520 the Pattern Day
Trader Rule
[11] Daily Action in Forex
8 External links
U.S. Securities and Exchange Commission on day
trading
9.1
Text
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9.2
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9.3
Content license