What is a Day Trader?

Aaron Livingston

The practice of buying and selling stocks, currencies, futures contracts or stock options in the same trading day is known as day trading. Someone who buys and sells stocks through out the same day is known as a day trader. They come in two types; Institutional day traders or retail day traders. They both perform similar tasks, except that the former will normally trade for a large financial institution, and as such will be dealing with large sums of capital. Because of the quantities of money involved, they have access to better data, tools, and technology.

A retail trader works with a smaller group of traders or may even work by himself. Most of the capital they use is their own, but in some cases they may trade with other people's money. A day trader makes their money by taking advantage of small price movement in a stock. They can buy and then sell in a very short space of time. Sometime they may buy the stock and hold it for a couple of seconds to a minute. This is also known as scalping. It is important to remember that while the stock may only move a cent or two, the amounts of money invested are quite large.

Some traders may borrow money to trade the market, a practice which is also known as margin trading. It can be an extremely risky to margin trade and trader will sell very quickly if they see the slightest loss.

Another method a day trader may use is range trading. This is where a trader identifies a stock trading in a range. Using various technical analysis or by using Fibonacci retracement, one tries to identify the support or resistance points. Doing so will allow them to more accurately pinpoint the low end of a price range and take a position in the stock as it starts to rise again. They then sell the stock once they find its high.

With research and practice anyone can become a day trader and learn how to use the different styles and strategies for their own benefit. There are risks involved, but the potential for reward is also very high.

The best thing to do is to spread your capital across different stocks to reduce risk. Make sure you research the market and use every tool available to give you the best chance of getting a good return.

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Article Source: http://EzineArticles.com/?expert=Aaron_Livingston 

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