Day Trading is when you are involved in taking a position in the foreign exchange market with your view of squaring that position before the day ends. A trader who trades as a day trader usually makes several trades in a day and a day trader also looks for fractions of a point up to a few points in every trade. The usual goal of a day trader is to actually be able to capitalize on the price movements within just one trading day. A day trader, unlike the different investors, holds positions for only a few seconds to minutes and it never extends overnight.
Advantages of Day Trading
- There is profit in any market direction since in day trading; you will only utilize short- selling in order to take advantage of the very fast declining stock prices. This is also why the ability to lock in a profit even if the market continues to fall all throughout the day is one of the most useful aspects even in the worst market conditions.
- There is no overnight risk, due to the fact that the positions are closed once the trading day ends. This is why different news as well as events that happen prior to the opening of the new market day does not affect your portfolio.
- Day traders actually have an edge of gaining or acquiring greater leverage together with their trading capital because of the very low margin requirements since the trades all close on the same market day. So if you have an increased leverage then you can also gain an increase in your profit once you are able to use them wisely.
- In day trading, you can actually earn more compared to an employed person’s monthly salary.
Disadvantages of Day Trading
- In day trading, the market hours are not convenient for everybody. If you are from the United States, there is no problem. But if you live in a place with a different time zone, then it is really inconvenient to have to either wait or catch the time.
- There are times that even if the market is moving with a great or big move but your trades will still be the same. In day trading, you should sometimes expect that even if there is a big change in the market status, you will still be able to end up with either break even or a loss.
- If you are a day trader, there is a big possibility that you will actually miss out on the overnight gaps that occur. In those overnight gaps, you expect that there are actually high profits which can take place; you will never know what occurs overnight in the stock market.
- In day trading, you are obliged to focus on the market for very long periods of time; this is not suitable for traders who actually need to fulfill other obligations during the day which leaves many traders frustrated.
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