Day trading is one of the techniques for getting quick return. As it name suggests, this type of trading means buying and selling the shares on the same day itself. All the trading activities are completed before the market closes for the day. Markets usually open in the morning and closes in the evening. Traders who do day trading are called as active traders or day traders.
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Types of Day Traders:
Day traders can be of two types: Institutional day traders and retail day traders.
1. Institutional Day Traders:
This type of traders works for financial firms. They generally have more access to more resources, tools and they have wide knowledge about day trading. Their motive is to work for their firm so that their firm can get more customers.
2. Retail Day Traders:
A retail day trader doesn’t work for others. He works for himself or his team. This type of trader invests their own money and they use either internet banking or contact brokers for trading. Recent advancements in computers and internet have attracted more retail day traders.
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Trade Frequencies:
Day trading doesn’t mean to be trading for the whole day. A day trader can trade unlimited number of shares in a day. Scalping and shaving are some of the methods which involves short time span. Each day trader follows their own strategy. Some traders aim for high profit.
If they feel that the stock price has reached at its highest for that day, then they suddenly sell the share. Some others observe the pattern of the price variation and try to predict the time at which there is higher probability for the share’s price to increase. Some people just believe in the market close price. So, they just purchase the share when the market opens and at the time when the market is about to close, they sell the shares.
Day traders can also enjoy the benefit of margin trading. In a margin trading, the trader can borrow money from the brokerage to trade. Margin interests will be charged only on overnight balance. So, if a share is bought and sold at the same day, no fee needs to be paid. But, if the share price decreases to considerable level, then the buyer should pay the amount immediately.
This type of trading activities should only be done if you are highly skilled and knowledgeable in particular share or industry. A novice trader should avoid such practice as it could means deep loss if not careful.
Risk factor:
Day trading has both the positive and negative impacts. It could either produce huge profit or it could also produce a huge loss. So, close monitoring of the market is a must. Some of the companies’ shares follow a specific trend. Identifying the trend can also help in earning more. The method of margin buying also can either return huge gain or huge loss.
Range trading:
In this type of trading, the share price will be monitored closely by automated software. An upper limit and lower limit should be set by the trader. If the share price either crosses the upper limit or if it goes down below the lower limit, then the share will be automatically sold.
More internet brokering firms have software with artificial intelligence and customized tools. Better utilization and good strategy will certainly help day trades in getting high profit.
