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)
How about a digital camera that is so small it fits on your key chain? The new Phillips Keychain Digital Camera is one of the hottest sellers on the market and it is easy to see why.
How To Plan And Layout A Flower Garden (2)
You should mark of the dimensions of your proposed garden carefully. Using a garden hose to mark the boundaries is advisable, as it is heavy and will stay in place, but it also provides the flexibility needed to tweak the proposed shape of your garden.
How Do I Know If I Should Buy Or Lease A Car (3)
When the lease ends, you have to return the car to the dealership. Now let's look at some other considerations and comparisons between a lease and a regular loan.
Are Hybrid Cars The Hottest Trend? (4)
Their lightweight structure gives them an extra power and better fuel efficiency. In some models, cameras and map-reading equipment have taken place of mirrors and wheel covers to save energy.
Wearing A Safety Belt Isn't Just For Your Safety (5)
Don't think that airbags alone will save you either. You have probably heard of people being killed by airbags. It usually happens because the person wasn't wearing their seat belt and the airbag hit them right in the face at 200 mph.
Why Should I Use Synthetic Oil In My Car (6)
One of the main questions people ask is whether or not synthetic oil is really better for the vehicle. Before the advent of synthetics the main thing that concerned people was the type and weight of the oil.
How To Maximize The Mileage On Your Hybrid (7)
Although this tip might require some organization and lifestyle changes, it will also save you the most money. A dime saved on every gallon is the estimate by energy agencies when you stay slow and steady.
How To Be Tan Without Damaging Your Skin (8)
Secondly, you always want to wear gloves if you are applying the tanning agent yourself to avoid getting the dreaded orange palms which are a dead give away that your tan is fake.
Some Of The Car Salesman's Favorite Methods (9)
One of the big things that is used to check the temperature of a prospect is to ask a question like "If it wasn't for the price would you buy today?" or "If I can get you the Alpine White Pearl that you want will you drive it home right now?" These are probing questions designed to tell whether they actually have someone who is ready to make a decision now.
How To Check Vehicles For Safety Before You Buy (10)
You will also want to check into what type of air bag system the vehicle has. All new vehicles are mandated by law to have dual front airbags but many manufacturers have began to offer side and rear airbags as well which is especially important in multi passenger vehicles like vans and SUVs.
Newer Articles Highlighter:
How To Express Yourself Through Blogs (1)
Finding the right words to express your thoughts is much easier when you have more words in your armory to choose from. You may be tempted to learn some suitably obscure words to impress your readership but too much of that will only confuse them and turn them away from your writing.
Some Good Sources To Find Used Vehicles (2)
You have a good chance of finding a good deal here so keep your eyes open. One thing to watch out for is that many times these people will owe more on their car than it is worth.
Things To Watch Out For In A Used Car (3)
Do not compromise on safety and don't by a vehicle that has a laundry list of issues that you will have to repair yourself. You should always take the vehicle for a road test and if at all possible take it overnight.
Why Are We In Love With Sports Cars? (4)
It allows us to explore our concept of freedom. It shows us our continual technological advancement while simultaneously reassuring us that we can keep our new technologies under our control.
How To Save Money On Gasoline (5)
Avoid jackrabbit starts and stops; this is one of the biggest culprits of poor fuel economy. Accelerate normally and don't ride bumpers. Keep your car tuned up and running properly.
What Are Some Of The Hazards Of Hybrids (6)
I t cannot be emphasized enough, without proper training, more serious injury, and even death, could result. This problem is being addressed by manufacturers of hybrids with Honda and Toyota going to the front of the line on safety procedures.
How To Make The Right Hybrid Choice For You (7)
While hybrids may be created differently, many have the looks and styles of traditional vehicles. 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.
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)
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. It is equally as important as any other accessory a woman wears, not like men who usually buy shoes just for the utilitarian need.
How To Make The Right Offer On The Car You Want (10)
You can be firm without being a jerk; you just want to be in control. 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.