Day trading is of the involvement of buying and selling, by first short selling and then buying back an instrument having the aim of making quick profit. The duration in which a trader can hold varies from a few seconds to a few hours without exceeding the span of a trading day. One instance is when a speculative trader sees the identification of a technical uptrend in Microsoft Corporation stock at 9:15 a.m. The trader then takes a long position in squaring it off in forty-five minutes so that he can make a quick profit in return.
Extending the position to another day is not of the qualification to day trading, but in compliance with its rules, it does require quick and timely action from the trader. Usually, it must look at the higher values that are of the coverage of the thin profit margins. Overall, small profits in huge volumes expose day traders to an alluring profit, which is a rewarding sign.
Most of the day trading does be of the occurrence of margins, exposing traders to limitations of capital in taking large positions that are larger than their invested capital. It has come to people's understanding that this large volume also sees low transaction costs for day traders. There are various trading assets available in the global markets which include stocks, bonds, commodities, Forex and other forms of derivative instruments. In short-term trading, few assets are of the tendency to see to the out-performance of others on trading platforms.
Instruments for Day Trading
The ease of seeing to the buying and selling of large amounts of assets makes it for easy trading as well see to the stability of price and efficiency.
This must be welcomed if one wants to see to frequent trading having the aim of seeing to the generation of multiple profits. Apart from the pricing of plain vanilla having financial products like equities and bonds, volatility also has a huge impact on other popular products, like options.
Low Transaction Cost
It should be of the understanding that traders’ frequency should not lead to high transaction costs, this is known to be of offering of staggered brokerage charging. This will see the per unit trading cost come lower as one trades in higher volumes on the trading avenue. For any day trading activity, low costs are a must that traders should imbibe in when executing their trading activities.
Margin Trading and Leveraging.
There is no trader on earth that would vibrantly and frequently be of the holding of large amounts of trading capital. The good side of the benefits of leverage is that it does pave the way for the allowance of traders in holding large amounts of trading capital. It also does lead traders to trade in higher proportions with the possession of limited capital in their trading accounts.
Traders possessing low capital requirements will lead to high levels of trading activity when it comes to overall marketing. As a matter of fact, leveraged or margin trading is a double-edged kind that sees to the exposure of both the profit and loss parts in trading. When dealing with this, one ought to be careful so that he can see to the keeping of trading within cautious limits of time.
Availability of Information
The movement of markets comes on the news; this is to say that day traders are conversant about information on whichever assets they are trading on. It must be understood by traders that not all trading platforms and brokers do make provision for easy and quick access to trending news on the instruments. An instance is a restriction that might be placed on add-ons, like text alerts on mobile devices by brokers and trading platforms. These are of restrictions to a qualified list of instruments like top thirty and one hundred of them. Accessibility to easy availability of news features that are of relation to a trader’s broker and trading platform should be a good parameter in selecting day trading instruments.
This is known to be foreign exchange markets that run frequently, Forex instruments are of perfect fit for short-term day trading. They do see the offering of high volatility, huge liquidity, low capital requirements, and low transaction costs.
Some of the instruments that have the most liquid and high-volume trading instruments are known to be futures when talking about popular indices. It is clearly understood that index futures are highly liquid and come with low transaction costs, but they are of less volatility. For day traders that are of familiarization with futures trading, this is beneficial to the high leverage availability of index futures trading.
Day trading is an interesting financial activity indulged in by the practitioners, which is understood to be of the attraction of beginners. However, there are certain things to be considered before honing into day trading activities, this will enable the traders to excel in the industry.
It is advisable that a trader should not just pick an instrument for his day trading without having enough knowledge about the instrument he has chosen. Choosing an instrument because one finds it at the top of the trading chart is a beginning of failure for such a trader. Traders ought to be careful when selecting their instrument, they should be of familiarization with the basics and realistic possibility of making profits with their chosen instruments.