Opinions about day trading vary widely. Some people
swear it is the best way ever to make a profit in the
stock market...others, including the SEC (Securities and
Exchange Commission) advise strongly against day trading,
insisting it is too risky. As with many things having
to do with investing and the stock market you will hear
all kinds of things about day trading. The trick is to
sort the information out.
But what exactly is day trading and why do so many advise
against it? Day traders literally trade everyday, all
day, buying and selling sometimes very rapidly. They hope
to see a stock going up, for instance, quickly buy a block
of that stock and then sell it again as soon as it has
risen enough to make a reasonable profit. If everything
works right the trader makes a profit every day from the
normal movement of stock prices up and down.
Day traders try to concentrate on certain stocks that
are particularly suitable for day
trading. The most important thing is that the stock
must be one that is highly liquid, which means it is bought
and sold often. This allows the day trader to buy and
sell easily. Liquidity varies with market volume and the
size and nature of the business. In general almost all
stocks on the major exchanges are more than liquid enough
for day trading purposes.
To be suitable for day trading a stock also needs to be
sold in sufficient volume that the buying and selling
activity of one trader won't affect the market price of
the stock. Day traders usually buy and sell big blocks
of stock so a good day trading stock needs to have at
least 500,000 shares traded a day. Day traders also look
for stocks that have high volatility, which means that
the price goes up and down rapidly. A stock with a rapidly
changing price is perfect for day trading. The ideal is
at movement of at least $2 a day.
A day trader also needs to be able to find sufficient
real time information of the orders for a stock. This
is sometimes called price transparency or market depth
and lets the trader know how much stock they can probably
move in a certain period of time. Traders need to have
access to the NASDAQ level II quote screens in order to
gather this information.
There is nothing illegal about day trading but it can
be extremely risky. Almost all day traders are working
with borrowed funds which they hope to increase through
their buying and selling. If the NYSE and the NASDAQ classify
someone as a "pattern day trader" then that
trader must trade through a margin account with at least
$25,000 as a deposit in it. The broker who handles the
account will require that further deposits be made if
the trader's holdings drop too far in value.
Because day trading is so risky the Securities and Exchange
Commission has devoted quite a bit of energy to spreading
warnings about the practice. Their fear is that people
will become involved without understanding how much money
they can lose in a very short time.Anyone who decides
to try day trading can expect to suffer huge losses as
they try to learn how to do it successfully. Very few
will succeed and make money in day trading. No one should
ever try day trading with money that they cannot afford
to lose without any problems.
Day traders are not really investors. They buy and sell
over the span of time as short as seconds or minutes.
They never hold stock after the close of the trading day
because the risk of overnight price changes is too great
for them. Day trading is really speculating; some call
it gambling.
Be sure to avoid websites which promote day trading by
talking about the great profit potential and then offer
you 'expert information' or 'hot tips' for money. The
recommendations are usually actually paid for themselves
and the advice is worthless.
Stop wasting time and money looking for the latest Stock
Market Quotes tips, tools, and techniques by visiting
http://www.YourInvestmentOptions.com
- a popular website that specializes in providing the
most up to date info on stock trading and investing for
traders of all experience levels.
Article Source: http://EzineArticles.com/?expert=Reginald_T._Hobbss
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