What is Day Trading? | Day Trading Definition

Trading is a trendy occupation that can be a hobby or a full-time job. Modern technological advances enable anyone to connect to the largest financial markets like the currency exchange. Traders in Vietnam pursue different strategies to buy low and sell high. They are their own bosses and may choose from a variety of styles. Day trading is a popular approach which can turn into a job.

How Day Trading Is Defined

As the term suggests, all trades are opened and closed within the same trading day. That means no trades are left open overnight, so there are no extra charges. The cost is either a commission or the spread.

A day trader has to close all of their positions each evening and reopen them the following day. That is why this strategy is classified as a short-term system. Its adherents zoom in on brief changes in the market, rather than long-term trends.

This shows how much trading is different from investment period. According to the conventional view, market participants should buy low, hold on to their assets, and sell high once the conditions are favourable. Day traders do not have this luxury. They need to act fast.

What matters is the price action of their asset rather than its long-term potential. To succeed, one needs to analyse vast amounts of technical data. Traders also keep track of news events that may affect the market. This system has its specific advantages and disadvantages. Here is a look at both.

Upsides of Day Trading

Day trading applies to different markets. It works for currencies, stocks and derivatives like CFDs, futures or binary options. Thus, once you get used to the style, you may easily expand your portfolio and boost profit while lowering risks. Educational resources from ForexTime are free, and you can even delegate decisions to professionals via copy trading.                

The second advantage is that traders avoid the risk of overnight changes. When positions are left open, any breaking news arriving late in the evening may affect the market dramatically.

Retail day trading only emerged in the 1990s. Decades ago, it was only accessible for large institutions like hedge funds or commercial banks. Now, anyone can become a day trader and work via desktop platforms or apps. This rise in accessibility facilitates the spread of day trading in the retail segment.

The modern systems highlight the opportunities for margin trading. Thanks to derivatives like contracts for difference day traders capitalise on downtrends and uptrends. Even negative price movements may now be profitable. Thus, the key benefits of day trading include

  • the absence of overnight fees and risks,
  • profit from any trends,
  • easy accessibility, and
  • effortless expansion of portfolios.

Downsides of Day Trading

Still, this system is not universally convenient. It requires intense focus and concentration. Traders should be committed to their goals and make fast decisions backed by thoughtful analysis. They need to be mindful to disregard emotional impulses that may cloud their judgement.

Secondly, day trading is time-consuming. You need to spend a few hours before the market opens to see where it may go. This is followed by several hours of active trading until the market closes. It is not obligatory to trade all day long, but you should make sure all positions are opened and closed within the same day. It is vital to stay vigilant.

Another setback is the costs. In some markets, such as the stock exchange, you need to pay a commission every time you buy or sell. In forex trading, this is true for ECN brokers. These companies charge a commission per trade. However, they allow you to use streaming quotes, and their pricing is transparent. In comparison, market makers include costs in spreads, so you never know how much each move costs.

Typical Risks

Day trading involves risks that are typical for other styles. The market has its peculiar logic and it is driven by forces beyond anyone’s control. For example, currencies lose and gain value based on changes in oil prices, fiscal policies, diplomatic relations, etc. No trader has power over global supply and demand.

The goal of a trader, whatever their style, is not to eliminate these risks (this is simply impossible). Instead, they make informed predictions and protect what they have. This makes risk management absolutely vital. Day traders should be extremely cautious when they use leveraged instruments like CFDs.

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