Buying and selling financial assets such as stocks, bonds, options, futures, or commodities within a single trading day with the objective of profiting from price changes in the underlying security is known as day trading. Positions may be held for a few seconds to several hours during the day, but they are always closed out before the market closes to prevent overnight exposure risk.
The primary characteristic of day trading is that securities are bought and sold on the same trading day. It implies that towards the end of the trading day, all trading positions are liquidated. The key goals of day trading are to identify potential short-term market inefficiencies.
Day trading is a high-risk investment approach. Even when a trader can precisely foresee the price movements of securities, transaction fees can offset earnings from price fluctuations. Day trading is speculating rather than investing, which makes it a potentially highly risky industry.
Ever since technological bubble happened, computerization has improved market efficiency, with auction pits being replaced by computer screens. With the advancement of retail broker tools and platforms, day traders may now study technical and fundamental data with only a few clicks. Highly skilled day traders have emerged as a result of increased access to news and information, as well as fast fills and order revisions.
The aim of the game in day trading is volatility. To gain profit, day traders usually rely on stock or market swings. They prefer stocks that fluctuate a lot throughout the day, regardless of the reason: positive or negative news, a good or bad earnings report, or just market emotion. They also prefer highly liquid equities, which allow them to enter and exit positions without significantly impacting the stock’s price.