Day Trading: Day
traders rapidly buy and sell stocks throughout the day in the hope
that their stocks will continue climbing or falling in value for
the seconds to minutes they own the stock, allowing them to lock
in quick profits. Day trading is extremely risky and can result
in substantial financial losses in a very short period of time.
Trading for a Living
There are two primary divisions of professional
day traders: those who work alone and/or those who work for a larger
Most day traders who trade for a living work for a large institution.
The fact is these people have access to things individual traders
could only dream of: a direct line to a dealing desk, large amounts
of capital and leverage, expensive analytical software and much
more. These traders are typically the ones looking for easy profits
that can be made from arbitrage opportunities and news events. The
resources to which they have access allow them to capitalize on
these less risky day trades before individual traders can react.
Individual traders often manage other people's money or simply trade
with their own. Few of them have access to a dealing desk; however,
they often have strong ties to a brokerage (due to the large amounts
of commission spending) and access to other resources. However,
the limited scope of these resources prevents them from competing
directly with institutional day traders; instead, they are forced
to take more risks. Individual traders typically day trade using
technical analysis and swing trades - combined with some leverage
- to generate adequate profits on such small price movements in
highly liquid stocks.
Day traders spend their time at computer screens,
quickly buying and selling investments within a single day - sometimes
within just a few hours or minutes - and reacting to continual market
swings. They trade in the hope that their investments will soar
in value in the short time they hold them, and net them quick profits.
Often they use computerized systems or advisory services that claim
to be able to predict the markets.
No doubt about it, this is a risky business. Despite
the picture of investing success painted by some day trading companies'
ads, far more day traders lose money than make it. Some traders
lose big, forfeiting their student loan money, second mortgages
or retirement funds. In addition, people who trade on margin or
sell short risk losing much more than their investment.
Every time investors make a trade, they pay
a commission. That's true whether they buy or sell and whether they
make money or lose their shirt.