Day trading
The practise of buying and selling the same financial item inside the same trading day is known as day trading. Day trading is a kind of speculating in securities. This is done to ensure that all positions are closed before the market closes for the trading day in order to avoid unmanageable risks and negative price gaps between the price at the close of one trading day and the price at the open of the next trading day. Speculators are a common kind of traders, and those that trade in this capacity fall under that category. Day trading is in contrast to the longer-term deals that form the basis of value investing and buy-and-hold investment methods. Since quick trade execution is often required in day trading—sometimes as fast as milliseconds in scalping—a direct-access day trading programme is frequently required for this kind of trading.
People in the United States who engage in more than three day trades within a period of five trading days are considered to be pattern day traders and are required to keep a minimum of $25,000 in equity in their trading accounts. These regulations are based on rules established by the Financial Industry Regulatory Authority. Yet, a day trader with the legal minimum of $25,000 in their account may purchase $100,000 worth of stock throughout the day (4 times leverage), as long as they liquidate half of those holdings before the market closes. Because of the high risk involved in using margin and in other aspects of day trading, a day trader will frequently be required to exit a losing position very quickly in order to prevent a greater, more intolerable loss, or even a disastrous loss that is significantly larger than their initial investment, or even larger than the value of their trading account. The trader may not have to pay any interest costs for the margin loan since margin interest is normally only levied on overnight amounts. Nevertheless, the trader is still exposed to the danger of having their margin called. The call rate of the broker is often used as a basis for determining the margin interest rate.
Stocks, options, currency (including cryptocurrencies), contracts for difference, and futures contracts such as stock market index futures, interest rate futures, currency futures, and commodities futures are some of the financial instruments that are day traded the most often.
Trading throughout the day used to be something that was only done by large financial institutions and highly skilled speculators. Day traders make up a significant portion of the workforce at many banks and investment firms, where they are employed as experts in equities investing and investment management. Day trading became more common in the years after the deregulation of fees in the United States in 1975, the introduction of computerised trading platforms in the 1990s, and the heightened volatility of stock prices during the dot-com boom. Recent lockdowns induced by the 2020 pandemic and the subsequent volatility in the market have resulted in a large increase in the number of retail traders entering the market.
Scalping is a kind of intraday trading strategy that is used by certain day traders. With this strategy, the trader holds a position for a very short amount of time—anywhere from a few minutes to mere seconds.
Day traders may be professionals who work for large financial institutions, are trained by other professionals or mentors, do not use their own capital, receive a base salary of approximately $50,000 to $70,000 as well as the possibility for bonuses of 10%–30% of the profits realised, or all of the above. Day traders may also not use their own capital. Day trading allows anyone to participate in the market with as little as $100 or even less thanks to fractional shares.