Day trading most commonly refers to the practice of buying and selling stocks during the day so that at the end of the day you don’t hold any shares overnight; you sell as many shares as you buy. You make money on the difference between the purchase and sales prices.
The main motivation for this style of trading is to make money every day so you don’t sit on the shares , plus of course you eliminate the risk that the shares go down in value overnight. the motivation of this style of trading is to reduce the risk of holding a position overnight where the open price may have significantly changed from the previous day’s closing price.
NASDAQ defined day trading by saying somebody is a Daytrader if he makes more than four buy and sell orders over a five-day period.
Prior to the year 2000 it was not uncommon for some of the most successful Daytraders to make more than a million dollars in a single day.
There were dozens of Daytrading Chatrooms where people were “told” what to buy and when to buy it.
Some Chatrooms had more than 500 members.
And most Daytraders, it is estimated as high as 99%, lost their shirt.
One of the reasons they lost their shirt is because they could trade on Margin.
Trading on Margin means that the brokerage firm which executes your trades will lend you up to 5 times your investment.
So if you had $10,000 in your trading account you could in some cases trade with $50,000.
However, if you lost on your trades, repayment was due immediately.
Since the heady dot com days of the year 2000 DayTrading has gone out of style and out of range.
Most brokerage firms have gone under or have consolidated, and staff has been reduced in the remaining firms by about 80%.
Trades that used to cost $35 to execute can now be had for as low as $4.-
Initially it happened because President Bush talked the economy down and Mr Greenspan kept on raising the interest rate to such a level that all optimism disappeared from the Market.
Up until this time like clockwork 2 or 3 days a week there were Stocks, mainly Internet Stocks, that would rise more than 30% early in the morning and then fall the same amount five minutes before closing so people could take profit.
If you were on the ball you could make a lot of money as a DayTrader.
You could also lose a lot of money.
Those days no longer exist.
It is very rare to see stocks vary more than 30% in one day so the profit potential first of all is not as great, and the ability to catch a percentage of the increase in the price of a stock has also lessened.
One of the reasons also is that Internet Stocks which were totally overvalued are no longer overvalued and as a matter of fact have risen much less than any other type of Stock.
Another reason is that there are very few IPO’s and even Google’s IPO did not take off for quite some time.
If it was not for the spectacular performance of Google , Internet Stocks lost more than 8% in 2005.
Even Ebay lost more than a quarter of its value.
However, if you are shrewd, you can still make money as a DayTrader but it ain’t easy.
What do you think happens when a company invents a car that runs on water?
If you could get news about this company very early you could make a lot of money.
Not many people know that you can trade the NASDAQ Stock Market as early as 6 AM.
So if you are a Stock Market News Hound and like to get up really early in the morning and have nerves of steel you could buy the stock at 6 AM and sell it at 9.29 AM to everybody else starting a regular trading day.
This will not happen very often, the fact that there is spectacular news.
But if you are patient it may happen once a month.