Who is a Day Trader?

The Day Trader is an investor who holds stocks several times within a single day. You may often hear them referred to as intraday traders.

Their goal is that by the end of the trading day, all positions held are closed.

They are in two major categories of day traders - institutional traders - who work for financial institutions, and retail traders - who work for themselves or with partnerships with a few others.

Institutional traders normally work for financial institutions like Fidelity. They have access to a lot more resources, tools, and equipment.

They also have access to large sums of capital to trade, leverage, and the ability to access fresh capital when needed.

They also have dedicated and direct lines to data centers and the stock exchanges, expensive and analytical software, and support teams to help them with trading.

End Result?

The ability to conduct high-end performance continuous trading!

Retail traders on the other hand work for themselves or form partnerships with other traders. They use their own capital and cannot advertise as advisors or financial managers.

Although they do not need to, they use direct access brokers because these brokers offer the fastest order entry to the stock exchanges, as well as superior software trading platforms.

There is a huge controversy about how much day traders really make. Just ask Jim Cramer or go to Google and search for "day trading".

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Because there is no clarity and little or no regulation there are countless internet scams that capitalize on the confusion and promise enormous returns.. so BE WARNED! if it smells like a scam..it probably is..

Now- this is not to say that day traders aren't making money? They are!

However - I would recommend that you enter into day trading ONLY after you have read and understood this craft!

What is Day Trading?

Let me answer that question by mentioning two approaches:

Scalping

Shaving

Scalping is an intra-day technique that usually has the trader holding a position for only few minutes.

Another word used often for scalping is spread trading.

Here is an example of what a scalp trader does - they look for price gaps (small but profitable when trading 10,000 shares) usually created by the bid-ask spread and exploit them.

Result?

They can establish and liquidate a position quickly, usually within minutes or even seconds.

To do this scalp traders apply principles like over/under-bought, support and resistance zones as well as trendlines, and trading channels to enter the market at key points, make quick profits from small moves, and then exit the position.

Shaving allows the trader to jump ahead by a tenth of a cent, and a full round trip (a buy and a sell order) is often completed in under one second.

Here is an example that might help

A bid for stock XYZ is entered at $10.20. Instead of bidding at the price of $10.20 per share for XYZ, they jump the bid at $10.201. This now makes them the best bid for XYZ and they are therefore first in line to be able to purchase XYZ because they have the best bid.

An investor comes with a "offer" of $10.21 for stock XYZ. The trader will again be the first to sell XYZ a tenth of a cent cheaper at $10.209.

Remember they bought XYZ at $10.201 and sold it at $10.209?

Profit is 0.008 of a dollar!

Small money you say - right? Well it does add up when you are buying the shares in 10,000 lots each time.

Also this happens quick and they can keep doing this "shaving" numerous times in a day.

Of course it is possible to make both profits and losses.

The evidence is in the pudding - right? The story of Paul Rotter should bring home the idea that there are profits in Day Trading.

Can you lose money? Absolutely!

So unless you are competent, and have a thorough understanding of day trading; unless you have the discipline, and the liquidity it takes - do not..I repeat, do not go there!


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