Stock market day trading is what we call the act of buying and selling security instruments inside the same day of trading such that all transactions are completed before the market close for that trading day. Stock market traders that participate in stock market day trading are called active traders or stock market day traders.
Stock market day trading, is a stock market trading technique popularized to the general public in just the past decade. This phenomenon came about from the severe market daily drops in 1987 and a few that happened over the next ten years.
The large down days made it impossible for investors to contact their stock brokers. So, it was put into law that access to the markets had to be available to everybody, and so the electronic stock market trading systems. Online stock market day trading blossomed in the early to mid 90’s.
How Stock Market Day Trading Works
Stock market day traders quickly buy and sell stocks throughout the day in the hope that their stocks will continue going up or down price for the short period of time they own the stock, allowing them access to quick profits.
Stock market day trading is extremely risky and can result in massive financial losses in a very short period of time if you don’t know what you’re doing.
Stock Market Day Trading Strategies
Stock market day traders usually trade shares of stocks which are very liquid: stocks that have plenty of willing buyers and sellers which allows you to buy and sell quickly.
Popular stock market day trading stocks are usually very volatile with big intraday price fluctuations allowing traders to profit from moves of just a few cents.
Market depth can be seen with system such as the Nasdaq quote system level 11, which allows you to see the best prices for buying and selling and how many shares are bought or sold measured at a certain price. Having this information is a must for day traders stock market because they need to know the number of willing buyers in this direction of trade, and vice versa.
Day Trading Stocks
Some of the more commonly day-traded financial instruments are stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures.
Under the rules of NYSE and the Financial Industry Regulatory Authority (FINRA), customers who are deemed “pattern stock market day traders” must have at least $25,000 in their accounts and can only trade in margin accounts.
Stock market day trading used to be an activity onlt for brokerage houses and professional investors and speculators. Obviously, many stock market day traders are bank or investment firm employees working as specialists in equity investment and fund management. However, with the advancement of electronic stock market trading and margin trading, stock market day trading has become increasingly popular among at-home traders.
Stock Market Timing and Short Sells
Short selling is a way to make money when a stock drops. It reverses the order of buying and selling. Usually you buy a stock and sell them later. On a short sale, you really do not sell shares you own but those borrowed with the idea that you’ll buy it later at a lower price.
Short selling is buying later by borrowing stock and selling it now. If you sell shares you do not have money for , they hold your account until you actually buy them.
The amount held depends on the share price. If you are on the margins, you can short sell two times as much as your cash reserves. Again to keep in mind there are interest costs. You are betting the stock price will go down.
Short selling is much more dangerous than buying shares. If you buy shares that become worthless you lose everything, but not more than that. And you can have an unlimited amount when it goes up. On a short sale if it goes to zero you double your money. But if it goes up, you lose money and you can lose an unlimited amount of money.
You can lose more than 100% due to short selling. In a market that is moving upwards short sales tend to swim against the current. And even if you win 50 times in a row, short sales can create a loss easily more than 100% of your money. You can trade a poorly valued company and suddenly some big company buys them out and the stock doubles overnight.
This has not only wiped you out, but you are in debt and lost all your previous profits. Just one of the many pitfalls of stock market day trading.
