A Closer Look At Day Trading
Topics: day trading, investing
Day trading is a controversial word in the world of stock trading. Many see it as a way to make a living off of the fast paced stock market. The Securities and Exchange Commission (SEC) warns against the practice and cautions against getting involved in the practice.
Just what is day trading and why does it cause many to be cautious? Day trading is the practice of rapidly buying and selling stock throughout the day in the hopes to profit from the marginal changes in the market in that specific day. Ideally, this practice allows investors to profit from the fractional increases in the market.
Day traders look at a certain set of criteria when determining whether a stock is suitable for day trading. First, the stock must have a high liquidity. This means that the stock in question has a large numbers of buyers and sellers. The liquidity allows day traders to quickly acquire and then sell stock. Liquidity is based on the volume of transactions on the market, the number of outstanding shares, the total number of shareholders and the number of market makers. Most stocks on the NYSE and NASDAQ have a high degree of liquidity.
A day trader also looks at volume individually, in addition to using it as criteria for liquidity. To be eligible for day trading, a stock should trade at least 500,000 shares a day. Stocks with 500,000 trades a day or more will allow the day trader to acquire or sell a large amount of stock without greatly affecting the price of the stock. Volatility is another factor in evaluating a stock for day trading. The term refers to the actual or expected price movement of the stock. This movement is up or down over a period of time. Day traders look at the volatility of stocks over an individual day. Stocks that change price frequently over one trading day are ideal candidates for day trading. A fluctuation of at least $2.00 per day is recommended.
Finally, a day trader evaluates the price transparency of stock. This term refers to the ability to gather information on the order flow of a stock. Also called market depth, price transparency helps the day trader determine just how much money there is to be made on a certain stock. The Nasdaq II quote system offers information on all bids. Day traders who arrange to access the NASDAQ level II quote screens can assess the strength or weakness of a stock and determine its movement in price.
While day trading is completely legal and entirely ethical, it is highly risky. Day traders usually buy on borrowed money with the hope that they will obtain higher profits through their acquisitions and sales. People who are deemed “pattern day traders” by the NASDAQ and NYSE must have at least $25,000 in their accounts and can only trade in margin accounts. Margin accounts are brokerage accounts in which the broker lends the investor cash to purchase securities. If the value of the stock drops significantly, the investor is required to deposit more cash to cover the margin or sell the stock.
The SEC warns against day trading and has taken many steps to inform people of the associated risks.
The first few months a vast majority of day traders suffer massive financial losses and only a few make it through to become profit-making day traders. For this reason, day traders should only invest money that they can afford to lose. They should never use money for necessities such as living expenses, retirement accounts or second mortgages.
Keep in mind that day traders do not own stocks for longer than a few minutes at most. Stocks are never kept overnight because of extreme risk of prices changing to the detriment of the trader. Day traders do not invest, rather, they speculate on the movement in price of a stock throughout the day.
There are many websites whose sole purpose is to profit off those who wish to become day traders. These websites promise quick returns and offer “hot tips” to their members for a fee. The sources are most often paid to make these recommendations and should be avoided.
Gregg Hall is a business consultant and author for many online and offline businesses and lives in Navarre Florida. theinternetmarketingsecrets.com
Previous Articles Highlighter:
A Look At Some Of The Hottest New Gadgets (1)
Know who's calling before getting up to answer the phone Easily readable from across the room Caller ID memory stores up to 76 records Time and date display Display holiday greetings, daily messages or personal greetings 100-year calendar Three user-programmable alert messages Visible night or day Automatic daylight savings time adjustment Battery back-up Underwriters Laboratories (UL) Approved.
How To Plan And Layout A Flower Garden (2)
Next, you should determine where you will likely place your flowers, taking into consideration the comparative heights of the plants, what time of the year they bloom, and what colors you will use.
How Do I Know If I Should Buy Or Lease A Car (3)
For example, a dealer may charge you 15 cents for every mile that you drive over 24,000 miles in 2 years. If you drive the car an additional 3,000 miles, you would owe the dealer $450 for those miles.
Are Hybrid Cars The Hottest Trend? (4)
It has both a gasoline and electric motor and both work separately to move the car further. The second variant of a hybrid car is known as a series hybrid.
Wearing A Safety Belt Isn't Just For Your Safety (5)
The seatbelt kept me from going through the windshield. Our first notion when we are told that we must do something or else, is to rebel against those who are commanding us even though it may be for our own good.
Why Should I Use Synthetic Oil In My Car (6)
The reason these organizations use synthetic oil is because it is designed for all weather conditions and does not break down easily. Synthetic oils also contain more engine protecting additives allowing you to go longer between oil changes as well.
How To Maximize The Mileage On Your Hybrid (7)
A dime saved on every gallon is the estimate by energy agencies when you stay slow and steady. A hybrid, or any car for that matter, does not like a lot of stop and go, either.
How To Be Tan Without Damaging Your Skin (8)
Remember that tanning agents aren't prejudiced. They will tan clothes just as well as they do your skin, so be careful when choosing what you wear afterwards. You should choose something dark and also maybe something you don't particularly care for until the excess is worn off.
Some Of The Car Salesman's Favorite Methods (9)
They may get your commitment and then come back and say "I can get to $9000, can you meet me halfway?" See what I mean? Another popular ploy that is still used today is the "I am in a contest" ploy.
How To Check Vehicles For Safety Before You Buy (10)
Some vehicles now have weight sensors as well that disable the airbag if a person below a certain weight is sitting there. My Nissan Titan has this feature. One should also consider the rollover rate of the vehicle as well.
Newer Articles Highlighter:
How To Express Yourself Through Blogs (1)
You are at an informal get together with family, close friends and neighbors; you talk about sports, literature and fashion with people who know you and who understand your opinions, your quirks and your few flaws -- there is no facade, no pretense, you are unabashedly you!
Some Good Sources To Find Used Vehicles (2)
I was in the business for over 15 years and I can tell you that you can get a good deal from an individual. One of the best sources to find a good used car is from people you know.
Things To Watch Out For In A Used Car (3)
I have seen many cars that looked good in the rain only to reveal faded paint and blemishes in the sunlight. One thing you must realize is that there is no used car factory so you may have to make some compromises.
Why Are We In Love With Sports Cars? (4)
From aerodynamic styling to compact yet powerful engines, they represent the cutting edge of technological design. In a society entranced by technology and innovation, the sports car has an iconic appeal that is difficult to equal.
How To Save Money On Gasoline (5)
Topics: car wax, car care products, car wax Every time you turn on the news you hear about the price of oil going up. Threats of embargos, political instability in the Middle East and now Nigeria and in the last year we saw the effect that major hurricanes could have on oil prices due to supplies being disrupted.
What Are Some Of The Hazards Of Hybrids (6)
Topics: car care products, car wax With all of the talk of hybrid vehicles many people are singing their praises about these lightweight, fuel-efficient cars. But are there hazards to driving a hybrid?
How To Make The Right Hybrid Choice For You (7)
However, it you would like something a bit extraordinary, hybrid manufacturers have developed a range of futuristic models, all available in an assortment of colors. For those who want a standard automobile look, compacts, sedans, and sport utility vehicles are also offered.
How To Buy Protective Motorcycle Clothing That Does More Than Just Look Good (8)
When choosing riding boots, they should be made of thick but flexible leather and the sole should be made of a material that is resistant to oil and other petroleum based products as you ten to put your feet down on the road quite a bit.
Why Are Shoes So Important To Women? (9)
It gives the feeling to the passers-by who notice the scene that shoes are being given away gratis! As goes the saying, the first impression is a lasting impression, thus it is really essential for a woman to pay attention to the type of shoes she wears.
How To Make The Right Offer On The Car You Want (10)
The control starts the moment you arrive at the dealer, if you are approached tell them you want to look by yourself and you will come get them when you have found something you like.