What Is Day Trading?

What Is Day Trading?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Day trading is a strategy of buying and selling financial instruments within the same trading day. This type of trading can occur in any marketplace but is most common in the foreign exchange (forex) and stock markets. With day trading, all positions must close before the market end of the trading day. Traders seek to profit from small price fluctuations and typically rely on advanced trading strategies and high amounts of leverage. It requires deep knowledge of the market and disciplined decision-making.

Related Questions

1. What are the risks associated with day trading?

Day trading involves several risks such as market volatility, financial loss, and high stress due to the constant need to monitor the market. It also requires substantial investment, as the trader must maintain a minimum account balance, and there’s always the risk of losing this amount.

2. What skills do you need for successful day trading?

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A successful day trader needs analytical skills to identify market trends and patterns, discipline to stick to their trading plan and deal with losses, knowledge of the market and trading techniques, and the capacity to make fast, well-informed decisions.

3. What is the difference between day trading and swing trading?

In day trading, traders buy and sell within the same day, whereas swing trading involves holding positions over a period of a few days to weeks to profit from price changes or ‘swings’.

4. Can day trading provide a stable income?

While it’s possible to make a stable income from day trading, it’s not guaranteed. Successful day trading requires a lot of skill, knowledge, and experience and even then, the market’s volatility can lead to inconsistent income.

5. What kind of initial investment is required for day trading?

The initial investment for day trading can vary. In the US, for example, the Financial Industry Regulatory Authority (FINRA) mandates a minimum of $25,000 in a brokerage account for day trading. However, this number can change depending on the market, the trader’s goals, and their personal risk tolerance.