12 Vital Features Of Day Trading

One can hear terms like currency, trade, foreign exchange, stock and so on, constantly being thrown around in any conversation revolving round business and trade! While some definitions are easy to grasp (currency trading, foreign exchange, etc.), others can be quite defeating! It is not possible to explain the entire trading world in a small article. So, we shall just stick to a detailed commentary on the latest concept called "day trading".

There are many features of day trading, and they are listed below--

(1) The term, "trade" here, concerns currencies, stocks and stock options, plus contracts such as commodity futures and equity index futures.

When the above-mentioned investments and securities are bought and sold, all within the same day, the process is termed as "day trading".

(2) Unlike "swing trading" where the same stocks are maintained for a couple of days more, these stocks are disposed off during the same day. These securities are not even held overnight; that is why the name, day trading.

(3) The investor need not worry about the currencies used in different parts of the world. FOREX is there to help out. Since this market is kept open for 24 hours, trading can take place any time of the day or at nighttime, any time during the week.

(4) There is no rule (uptick rule) that states that it is as easy to sell currencies as it is to buy them.

(5) Currencies are more liquid, always on the go. They are simpler to handle as they are fewer in number than stocks. Thus, currency day trading is simpler.

(6) An investor who cannot afford to put in a capital of more than $25,000 (this is the minimum requirement for day trading), can go in for currency trading. This demands a nominal amount of just a few hundred dollars. With this, the trader can activate a mini account with FOREX.

(7) The intraday margin for stock trading is 4:1. So these traders can juggle around with $100,000 worth of stock by just investing $25,000. In contrast, currency trading (also known as short-term trading) has a large margin of 50:1. Thus, the investor can use $25,000 or even less to play with stock worth $1,250,000.

(8) This kind of trading demands that an investor purchase a minimum of 1000 shares concerning any particular stock, on any particular day. Adequate capital is therefore a necessity. Even a newcomer would be well advised to make his/her entry with $25,000, not less. Of course, despite this big investment, there are no safeguards against unseen risks.

(9) A seasoned veteran knows how to plan his investment, what strategies he/she is going to use and whether he/she is willing to face the risks or not. Dependent on these, he/she charts out how much of leverage he/she can use. He/She is also aware of how to reduce probable losses.

(10) It is important that traders/investors involved in trading remain objective about the whole business. They can only follow the current market trends and go along with the flow. They are advised to go in for popular and high-volume stocks, since they they can be easily disposed off at the end of the trading day.

(11) It is a business of "risks". The investor may gain $50,000 to a million in one day, or lose his/her capital totally! No one can predict market fluctuations. It is up to the investor's keen sense of business to decide when he/she wants to hold or sell his/her stock.

(12) To conclude, day trading proves "lucky" only if time is taken out to research market trends, utilize strategies wisely and make sharp decisions.