Introduction To Day Trading
Financial trading involves buying and selling in different financial markets, with the aim of making a profit. Day trading refers to the practice of doing the buying and the selling on the same day.
In other words, whereas an investor will usually buy company stock and hold onto it for a long time, hoping that it's value will rise, a day trader would buy the stock and then sell it again all in the same day.
Day trading can produce huge profits in very shorts spaces of time, but it is also a very risky process, and many day traders have lost everything by making bad trading descisions.
Day Trading Markets
There's More Than Just The StockMarket!
Day traders are active in a number of different financial markets, but there are the 'big three' markets where most activity takes place:
Stock Market
This is probably the most well known of financial markets, but did you know there is more than one stockmarket? Almost every developed country has its own stockmarket, and in most cases, more than one.
When a company wants to raise money, it sells of small parts of itself (stock), and it does so on a stock market. Anyone can buy that company stock. If someone buys some stock in a company, and the value of that company rises, then they can sell back their stock at a higher price. This is basically how we make money on the stock market.
Futures Market
This is a bit more complicated, and I'm putting together a different lens to cover the futures market in more detail.
Put very simply, futures are a sort of 'made up' financial instrument that reflect the price of a real item. Common futures include pork bellies, oil, wheat, soya, and so on. But there can be futures for almost anything, including financial indices like the Dow Jones Index, or the FTSE 100 index.
These index futures are very popular among day traders because of their high liquidity and volatility. This means that the values change rapidly and in great quantities, which provides many opportunities to make profitable trades during the day.
Forex Market
This is the last of the big-three markets. Forex stands for FOReign EXchange. It is the market of currency trading.
If you've been on holiday outside of your home country, the chances are you had to change some of your own currency into that of the country you were visiting. When you changed back what was left when you came home, you probably would have got a different exchange rate from when you left.
That's because the values of different currencies change all the time. Day traders can profit from these changes by buying one currency with another, then selling it back again later.
Stock Market
This is probably the most well known of financial markets, but did you know there is more than one stockmarket? Almost every developed country has its own stockmarket, and in most cases, more than one.
When a company wants to raise money, it sells of small parts of itself (stock), and it does so on a stock market. Anyone can buy that company stock. If someone buys some stock in a company, and the value of that company rises, then they can sell back their stock at a higher price. This is basically how we make money on the stock market.
Futures Market
This is a bit more complicated, and I'm putting together a different lens to cover the futures market in more detail.
Put very simply, futures are a sort of 'made up' financial instrument that reflect the price of a real item. Common futures include pork bellies, oil, wheat, soya, and so on. But there can be futures for almost anything, including financial indices like the Dow Jones Index, or the FTSE 100 index.
These index futures are very popular among day traders because of their high liquidity and volatility. This means that the values change rapidly and in great quantities, which provides many opportunities to make profitable trades during the day.
Forex Market
This is the last of the big-three markets. Forex stands for FOReign EXchange. It is the market of currency trading.
If you've been on holiday outside of your home country, the chances are you had to change some of your own currency into that of the country you were visiting. When you changed back what was left when you came home, you probably would have got a different exchange rate from when you left.
That's because the values of different currencies change all the time. Day traders can profit from these changes by buying one currency with another, then selling it back again later.
Day Trading vs. Investing
Which Is Better?
It's impossible to say if day trading or investing are better than one another, as they are trying to achieve different things. Investment is usually about long-term growth, whereas day trading is more about generating income on a regular basis.
Many people believe that day trading carries more risk than investing. However, both offer just as much potential for loss as each other, if the trades are not managed correctly.
My personal view is that day trading can carry less risk than investing because it imposes strict trade management.
Many people believe that day trading carries more risk than investing. However, both offer just as much potential for loss as each other, if the trades are not managed correctly.
My personal view is that day trading can carry less risk than investing because it imposes strict trade management.
More About Day Trading
Some Further Recommended Reading
- Day Trading Lens
- Another lens and another view of day trading. Worth reading.
- Online Stock Trading
- Day trading in the internet age!
- Day Trading Course
- An excellent article about choosing a day trading course if you want to learn day trading yourself.
- Stock Trading Course
- A very good course for anyone wanting to trade the stock market.
- Day Trading Software
- Wikipedia entry for day trading software
