Day trading is a form of trading that holds an asset for a single trading day, in an attempt to profit from price fluctuations in the markets. In theory, by closing all positions (or “position squaring” as it’s also known) on the same day, day traders avoid the risks involved with holding a security for the long-term.
Stocks are the most common securities involved in day trading. However, other day-traded securities include currency, futures, options, and commodities.
There is no guaranteed fail-safe strategy when it comes to day trading. Ultimately, any day trading strategy must involve four main components:
Additionally, adherence to money management rules is critical for any individual who is interested in day trading. Never trade with capital that you cannot afford to lose – meaning never use money set aside for monthly living expenses, bills, etc.
It is crucial to understand that day trading is considered highly speculative and riskier than some other forms of trading. Some even regard day trading as controversial because more often than not, the risks greatly outweigh the profits.
The U.S. Securities and Exchange Commission (SEC) went so far as to release a set of facts and warnings regarding day trading:
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Day trading has the potential for significant financial loss and is NOT appropriate for everyone (especially novice traders).
The simplest way for a trader to day trade is via a broker. Because there are numerous brokerages, the choices can be a bit overwhelming, especially for beginners. Here are some of the most popular and respected online brokers for day trading.
Fidelity is a popular choice for active traders who want access to equity trading, international trading, and IPOs. In addition, Fidelity offers comprehensive research tools and no commission for online US stock trades.
Charles Schwab is another popular choice for active traders. The company has no minimum account requirements, $0 commission for online stock trades, and provides access to comprehensive research and trading tools.
E*Trade is a good choice for active traders who want professional guidance, in addition to access to comprehensive research tools and market data that is intuitive and user-friendly.
For those active traders who are searching for a broker with $0 stock trading commissions, then Robinhood may be your best bet. Founded in 2013, this trading app has exploded in popularity, mainly because of its free trades of stocks, options, and ETFs. The mobile app is highly regarded for being intuitive. It also has a no minimum balance requirement.
If investing in stocks is something that you are interested in, give this free stock trading simulator a try before leaping into the real-world stock market. It’s fun and informative and will help you hone valuable skills and techniques to become an effective trader.
Additionally, this free day trading simulator will give you the opportunity to better understand the nature of speculation.
Here is a comparison table examining the different types of trading.
Type of Trading Best Suitable For Risk vs. Potential Return Control Over Investments Research and Legwork Needed
Options Active Traders Lower-level Risk
(When Done Correctly)The investor has complete control over which companies are selected, and what options contracts are chosen. All research and trading is done by the investor.
Stocks Beginners and Long-term Investors High risk, yet has the potential for larger gains The investor has direct control over all invest decisions. All research and trading is done by the investor.
ETFs Beginners and Long-term Investors Lower-level Risk Professionally managed investment vehicle. All research and trading is done by a financial professional. Investors are charged a fee called an "expense ratio".
Bonds Beginners and Long-term Investors Lower-level Risk If investing in individual bonds (rather than bond ETFs) the investor has direct control over all invest decisions. All research and trading is done by the investor, if investing in individual bonds.
Mutual Funds Beginners and Long-term Investors Lower-level Risk Professionally managed investment vehicle. All research and trading is done by a financial professional. Investors are charged a fee called an "expense ratio".
Futures Active Traders Medium-level risk (when done correctly) The investor has complete control over which futures contracts are chosen. All research and trading is done by the investor.
Swing Trading Active Traders High risk, yet has the potential for larger gains The investor has direct control over all invest decisions. All research and trading is done by the investor.
Day Trading Active Traders High risk, yet has the potential for larger gains if done correctly. The investor has direct control over all invest decisions. All research and trading is done by the investor.
Commodity Trading Beginners and Active Traders High risk, yet has the potential for larger gains The investor has direct control over all invest decisions. All research and trading is done by the investor.
Trend Trading Beginners and Active Traders High risk, yet has the potential for larger gains The investor has direct control over all invest decisions. All research and trading is done by the investor.
YES!
In theory, day trading seems like an easy way to capitalize on price fluctuations in the markets. However, it is imperative to understand that day trading is considered highly speculative and riskier than some other forms of trading. More often than not, the risks greatly outweigh the profits. Day trading has the potential for significant financial loss and is NOT appropriate for everyone (especially rookie traders).
There are no fail-safe rules or strategies when it comes to day trading. Ultimately, any day trading strategy must involve four main components:
Additionally, adherence to money management rules is critical for any individual who is interested in day trading. Never trade with capital that you cannot afford to lose - meaning, never use money set aside for monthly living expenses, bills, etc.
Here are some of the most popular and respected trading platforms for day trading:
Fidelity - This is considered one of the best trading platforms for active traders who want access to equity trading, international trading, and IPOs. In addition, Fidelity offers comprehensive research tools and no commission for online US stock trades.
Charles Schwab - This is another popular trading platform for active traders. The company has no minimum account requirements, $0 commission for online stock trades, and provides access to comprehensive research and trading tools.
E*Trade - This trading platform is a good choice for active traders who want professional guidance, in addition to access to comprehensive research tools and market data that is intuitive and user-friendly.
The simplest way for a trader to day trade stocks is via a broker. Some of the most popular and respected online brokers for day trading (and stock trading in general) include Fidelity, Charles Schwab, E*Trade, and TD Ameritrade.
Research individual online brokerage firms to decide whether a “full-service” or “discount” company is the best fit for you. Full-service brokers typically have a hefty minimum account requirement, yet provide professional trading advice when requested. Conversely, discount brokers often have no minimum account requirement, but investors could face additional fees. All online brokers offer research and educational trading tools which is an added incentive for investors.
It is imperative to understand that both day trading and options trading is speculative, have the potential for significant financial loss, and are NOT appropriate for everyone. Before you begin trading, it is critical that you do extensive research on the topic and utilize reputable educational resources with proven long-term results.
Day trading options has both pros and cons, as with any investment vehicle. Always do your due diligence before investing your hard-earned money!
Cryptocurrency and currency in general, are frequently day-traded securities. In addition, stocks, futures, options, and commodities are also day-traded.
Founded in 2013, the Robinhood trading app has exploded in popularity, mainly because of its free trades of stocks, options, and ETFs. For those investors who are searching for a broker with $0 stock trading commissions, then this may be your best bet. The mobile app is highly regarded for being intuitive. It also has a no minimum balance requirement.
Day trading is a type of trading that involves being in and out of the market, closing all positions (or “position squaring”) on a single trading day.
Swing trading is a form of trading that holds a financial instrument (such as stocks) for several days or even months in an attempt to profit from price fluctuations, or “market swings”. Swing traders utilize technical analysis to determine market swings. The essence of swing trading is buying or short selling stocks to capitalize on these small market swings.