What is Day Trading? Our Expert Guide

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What is day trading? Day trading means buying and selling stocks within a single day. The main difference between day trading and traditional stock market investing is that is the timeframe that the two types of traders deal in with traditional traders usually holding onto stocks for many months and even years. Day trading can be highly profitable depending on how well you’re able to predict what stocks will do during the course of that day but there is also the risk of losing a lot of money in a short period of time.

In this article, we’ll cover everything that you need to know about day trading and give some pointers for success.


What is Day Trading?

There are two different types of trading that people do in the stock market, day trading and investing. Day traders will buy stocks during the course of one day to sell them for a profit within 24 hours while investors hold onto stocks for weeks, months or even years before hopefully selling them off at a profit.

Essentially, day trading is all about timing with traditional traders holding their investments much longer than day traders. Traditional traders take a longer-term view to profit but day traders live and work day-to-day. They simply want to make money by buying low and selling high as quickly as possible so they can get back into the game again the next day with new opportunities.

What are the Benefits of Day Trading?

There are several benefits to day trading. One of the main advantages is that you can make a lot more money than with traditional investing. If you’re good at predicting what will happen in the stock market during just one day then there is the potential to significantly increase your profits within 24 hours. This depends on many factors including the amount of money you have to invest, how much risk you are willing to take and your knowledge of the stock market and current events affecting global economies.

Another major benefit of day trading is that it takes less capital to get started compared with traditional stock market investments where investors often need a large amount of money to start if they want to make serious gains later on down the line. Because day traders make money each and every day, the profits are continuous if you are successful.

What are some of the Risks of Day Trading?

The biggest risk when it comes to day trading is losing all your money very quickly if you make a trade at an inappropriate time or don’t know what you’re doing. If your timing isn’t good and/or you make poor decisions then there’s always a very high chance that you could lose everything within 24 hours.

Furthermore, if you’re trading stocks that are very volatile then it is possible to lose money in one day even if your timing was perfect. If the market moves against you significantly, there’s no chance of recouping those losses back that when the stock falls into a downward trend.

Another risk associated with day trading stems from regulations that vary depending on where in the world you live and what kind of accounts you have access to. In the US, for example, there is a rule that states you need at least $25,000 in your account to start day trading which we will explain in further detail later.

woman checking day trading charts


How Much Money Do Day Traders Make?

Some day traders make small profits over the course of a few days or weeks while others can earn very large amounts in one single day. It really comes down to how well your timing is when it comes to buying and selling stocks quickly versus holding onto them for much longer periods of time.

For example, if you are able to buy stocks that have a very small market cap but then increase in value by 20% the next day, your profits within one day could be far higher than if you had invested for several years because it takes time for these sorts of gains to accumulate over months or years rather than minutes and hours.

Another way of making significant profits day trading is investing in penny stocks which can often move up or down significantly on an hourly basis so there’s lots of room for quick profits when your timing is good. Penny stocks, as their name suggests, are very cheap so you don’t need to invest a lot of money to buy one share.

How can you Get Started With Day Trading?

The best way for beginners to learn the day trading ropes is usually with an online broker who can provide education and training packages that will help you prepare before you start investing. Most brokers offer demo accounts where newbies can practice with virtual cash until they’re ready to trade live using real funds. This will give you time to test out specific strategies without risking any real money.

Another strategy worth looking at if you are new to day trading is to find a good mentor who can help you set out the foundations of your strategy and keep you on track when it comes time for live trading.

What Are Some Effective Day Trading Strategies?

There are many different strategies that can be used to day trade stocks which will depend on your own level of trading expertise. For example, if you’re just starting out then it’s best to focus on low-risk investments with small market caps and penny stocks where the risk is lower because there isn’t much room for them to fall so quickly before they bounce back up again.

Another strategy is to use technical analysis to look at market trends and make predictions before buying or selling. If you are able to correctly identify the next big move in a stock’s price then there is huge potential for making profits within minutes rather than months or years. Technical analysis involves studying historical price charts to find out where a stock’s current price is in relation to previous highs and lows. If the market has been going up at a steady pace, for example, then it might be worth investing if you think there will be no sudden dips or falls along the way.

What are Margin Accounts?

When day trading on margin accounts instead of cash accounts your broker lends you money so that you can invest with more money than is currently held in your account. This means you have much bigger buying power which will enable you to make larger profits from your investments. However, trading on a margin account also comes with greater risks because any losses will not just impact your money but also the extra amount you borrowed. This means that having a solid strategy is even more important than ever because if you lose money then it could be very difficult to pay back the broker.

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What are Margin Calls?

If your margin account value falls below a certain level, typically 30% of the total amount invested, this will trigger a “margin call” where your broker demands that you deposit extra funds immediately or sell off some of your investments in order to raise enough cash for them. If you fail to meet their request within 24 hours then they can potentially close down all trading on your account until further notice. This means any profits made up until that point would also disappear. It’s therefore vital that traders use caution when day trading with leverage because it can be very easy to lose your head when it’s “not your money” and make risky decisions that are difficult to reverse.

What are Stop Losses?

A stop loss is an order placed with your broker to sell off the investments in your account if it falls below a certain price. This is used as a way of limiting losses and can be very useful when trading on margin accounts because they will automatically close any trades which are losing money, regardless of whether you manually place another order or not. The downside of this approach is that if prices move back upwards after hitting rock bottom then you might miss out on some gains because your investment would still be closed down by the stop loss until you specifically cancel the order.

What Are Some Common Day Trading Myths?

The most common day trading myth involves making “easy” profits only available to those who have insider information about what’s going on behind the scenes. While it’s true that some of these “insiders” are able to make a lot of money each day, they also risk losing everything if their predictions end up being wrong. Day trading is not easy and there is no quick way for anyone to become an instant millionaire by making risky decisions with large sums of money on a daily basis.

What Are Some Common Mistakes Made By New Day Traders?

Traders who are new or inexperienced often fall into one of two camps: those who think it will be incredibly easy because everyone tells them how much money they make each day; and those who completely panic when faced with any level of volatility in the market due to lack of experience. The former group will likely lose a lot of money in short order because they have no idea what they’re doing or why, while the latter group is more likely to hold on for too long and fail to sell until it’s already way too late.

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What is Scalping?

Scalping is a popular day trading strategy that involves making quick, small gains on each trade by buying and selling shares in very short amounts of time. This can be done multiple times per day which will increase your profit but also your risk because it’s easy to lose more money than you originally planned for if any trades go wrong or prices suddenly fluctuate at the last minute. You, therefore, need to have an exit plan set out before following a scalping strategy so you know precisely when you’ll get out of a particular investment before entering into another one immediately afterwards.

How can you Succeed as a Day Trader?

In order to be successful when trading on a daily basis, you need to have excellent discipline and patience. It can take years of learning from your own mistakes before you start making consistent profits and even then there’s no guarantee that the market won’t make an unexpected move that wipes out all of your gains in just a few hours. You also need to know exactly what strategy is best suited for your personality type because not all traders are cut out for day trading.

What is the 25k Rule in the US for Day Trading?

In the United States, it is against federal law for traders to day trade unless they have at least $25,000 in their accounts that can be used towards risky trades without being required to put down any collateral or additional money. If you are found breaking this rule then there could be very serious consequences including fines and even jail time if your day trading activity was deemed illegal by authorities. The purpose of this rule is mainly about protecting beginner investors who don’t know what they’re doing yet from losing all their hard-earned cash within 24 hours due to ill-timed investments.

Final Thoughts

There are many different types of traders who all use their own specific strategies to make money in the market. Day trading is not for everyone because it requires a lot of time and dedication but there’s no denying that it can be very profitable if you do your homework and develop excellent timing skills. With many traditional traders beginning to ask “what is day trading?” and looking to move towards more instant profits, the opportunities to make money are enormous. Just make sure you learn your trade before you start day trading large amounts of money.

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