2008-05-18

Day Trading

Day trading is a term that refers to the time frame in which traders choose to trade. If a trader buys and sells financial instruments (financial instruments are: stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures) within the same trading day, i.e. closes positions before the end of the trading day, then it is correct to say that s/he is day trading. As opposed to day trading, the term over night trading also exists, and it means that positions remain open until the next trading day. The Foreign Exchange market (Forex market) has many day traders.

Some day traders open one position a day, other open dozens. Some day traders focus on extremely short-term trading (seconds, minutes) whereas others prefer long-term trading. Many day traders believe that they must close their position before the market closes as to avoid the risk of changes in the price (i.e. to avoid situations in which large differences between the previous day’s close price and the next day’s open price exist.) Of course, then there are other traders that choose to do the exact opposite…. Either way, trading has undergone a transformation. And so has day trading. Up until not too long ago, day trading was something that only financial firms and professional investors engaged in. However, with the introduction of trading software and online trading, all sorts of individuals have adopted day trading.

One trading technique frequently used by day traders (specifically by Forex day traders) is trading as per the news. That is to say, to base trades on current events; traders open positions following major news releases. The reason this technique is used mainly by day traders is because such opportunities (changes in the value of currencies as a result of news releases) are usually short-lived; they may last for only a few minutes or even only a few seconds. That is to say, if some country released an economic report showing a growth in its Gross Domestic Product (GDP) then this may influence the value of that nation’s currency—a rising trend in the GDP shows that the economy is growing stronger, and hence, many day traders may choose to invest in that country’s currency. But like already said, the opportunity to do so is usually short-lives, and hence, only day traders can benefit from such opportunities.





1 comment:

Ellen Ross said...

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