Day trading: definition, risks and how to start

Day trading means buying and selling securities rapidly — often in less than a day — in an attempt to profit off of short-term price movements.

Key points:

• The objective of day trading is to capitalize on short-term fluctuations in stock prices and other assets by making frequent trades to secure numerous small potential profits.
  
• Day trading carries inherent risks. Seasoned traders employ a variety of strategies and techniques to make informed decisions and manage risk effectively.
  
• For beginners, it is advisable to start with a modest approach—maintaining their regular jobs and investing only what they can afford to lose. They should also familiarize themselves with common day trading strategies, such as range trading, spread trading, fading, and momentum trading.
  
  

What Is Day Trading?

Day trading is a fast-paced form of investing in which individuals buy and sell securities within the same day. The goal is to profit from short-term price movements in stocks, options, futures, currencies, and other assets.

In contrast to long-term investors, day traders are primarily focused on seizing quick potential profits from market fluctuations, rather than analyzing the fundamental value of securities.

Day trading can be highly profitable if executed correctly. However, it poses significant challenges for beginners and is often a losing venture for new investors. To improve the odds of success, it's essential to thoroughly understand technical strategies and other key aspects of the market.

Know the risks of Day Trading

Day traders frequently use borrowed or leveraged capital to acquire additional assets each day, significantly heightening their risk. This advanced form of investing demands careful monitoring of market conditions and news, operates at a rapid pace, and involves a considerable amount of speculation.

The risks involved, however, are substantially higher than longer-term investing strategies. A lot can happen during the market day that can result in market and stock volatility that can be a challenge for even the most experienced day trader. Proper risk management prevents small losses from turning into large ones and preserves capital for future trades. But that means traders have to be willing to realize a loss, which is hard for many traders to accept, even though it’s essential to long-term survival.

When assessing your risk, consider these factors:

1. Position Sizing: How much will you lose if the trade does not go as planned

2. Portfolio Impact: How will a negative position affect your overall portfolio

3. Loss Tolerance: What is the maximum loss you are prepared to accept before deciding to sell

4. Exit Strategy: After a profitable trade, at what point will you choose to sell

How to start day trading？

1. Gain a solid understanding of the market and how to apply both fundamental and technical analysis effectively.

2. Make sure you have sufficient capital to comply with regulations and to ensure that you are never risking more than you can afford to lose.

3. Establish clear trading criteria and consistently adhere to them.

In practice, successful day trading requires intense concentration, rapid decision-making, and the capacity to stay calm under pressure. Traders must continuously track various data sources, decipher intricate market signals, and execute trades with precise timing. It's a high-stress activity that combines analysis, psychological resilience, and swift action—quite different from the more passive approach of long-term investing.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.