What is Day Trading?

Understanding what is day trading involves getting a grasp of what is and what is not involved

Essentially, day trading is the buying and selling of securities on the same day. To do this, day traders (people who do day trading) often take advantage of borrowed money in order to make the most of small price movements within highly liquid indexes or stocks. If you want to understand day trading, think of it as what long-term investors are guided by: buying low and selling high. Day traders just have to do that in a shorter period of time.

What is Day Trading?

As for what is day trading not involved with, it is not investing, in that investing is about buying stakes in assets that will ideally earn profit over long periods of time. Just how long is subjective but it is normal for investors to have assets that are years old. This does not happen in day trading as everything is bought and sold all within the same day.

Part of having an idea as to what is day trading also means knowing what different terms mean. This way, you know what is happening and will be able to follow processes as needed. It’s just like any field, if you think about it, having certain terms specific to the field. Some of the most basic that you will encounter during your aim to understand what is day trading include:

• Securities – financial assets that may be assigned values and traded, typically including bonds and stocks
• Stocks – one of the securities that give the holder some form of ownership rights within a company. If you have stocks from a company, you are called a stockholder.
• Derivatives – dependent securities whose price are based on one or more underlying assets and whose values are guided by fluctuations in an underlying asset. Futures contracts are one of the derivatives.
• Trade – buying or selling financial assets in financial markets
• Trader – a person involved with buying or selling financial assets, generally holding assets for shorter periods of time than investors
• Index – an imaginary securities portfolio that represents a certain market or a particular portion of it.
• Broker – a middleman involved with facilitating trades that happen between buyers and sellers
• Leverage – using borrowed money in order to boost potential returns
• Initial Public Offering – the first time that stocks from a corporation will be sold. Having an Initial Public Offering is the same as saying that a company is going public.
• Liquidity – a way of buying and selling assets without influencing price levels
• Volatility – the measure of a security’s price with variations over time
• Closing out – when all transactions are completed at the end of the day, you are having a closing out. A closing out is done in order to reduce risks that day traders are susceptible to since positions aren’t held overnight.

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What is Day Trading?

Whether day trading is for you or not depends on what you want you want to achieve. Understanding all there is to know about what is day trading can help you zero in on the answer.

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