Day Trading

The definition of a day trader is a trader who typically completes both the purchase and the sale of a financial instrument within a single trading day. One of the biggest advantages is that since the trade is closed out before the end of the trading day you do not have overnight exposure. This is an especially important point in the stock and futures markets where it is difficult or in some cases not possible to close a position after normal trading hours.

As many of you already know, the difference between the close of the previous day and the open of the next day can be large if a major event happens outside of trading hours(gap up, gap down). This puts non day traders who hold positions overnight into a somewhat risky position where they could be forced to take a much larger loss than they otherwise would have.

Day traders are more nimble, as they move in and out of the markets quickly seeking trades with a high success rate and cutting their losses quickly. This allows them to take advantage of more opportunities than are available to longer term traders.

The biggest disadvantage is the greater transaction costs that are involved.  Because day traders trade several times or more a day, they generate more commissions and pay the spread a greater number of times. & If you’re not cutting loss quit, you’ll blow up your account in a day.

The second disadvantage is the amount of resources that are required in relation to longer-term methods of trading. They are required to have at least 25,000 in their trading account. Day traders spend more time in front of the screen, have to have more concentration, and more technology such as high powered, level 2 charts and news feeds than longer term traders do.