Day trading

Day trading involves trading securities during the trading day but closing all positions by the end of the day. The trader, a more accurate description than investor, will not have any holdings or short positions to carry forward to the next day.

The proprietary trading operations of investment banks do often day trade, but the term is most commonly associated with individual investors. Compared to traders at investment banks, individual investors have much less access to information, much less sophisticated systems and much less support in terms of research and trading systems. These are all crucial to short term trading. The banks can also deal far more cheaply than private investors.

The biggest problem for private investors who day trade is the cost of trading. The returns that are needed to cover trading costs are huge if one considers that the profit has to be made in a matter of hours.

Day trading is a very high risk approach, and requires the expenditure of considerable time. Some investors make spectacular returns from day trading, but at least as many make spectacular losses. The two are often the same people, as it is not uncommon for investors to be lucky for a while and then, confident in the ability to make money by day trading, to keep putting their money back into day trading, and eventually make large losses.

Day trading tends to be popular during booms, when the general upward movement in share prices makes it more likely that day traders will make money. It is unlikely most day traders can make sustained positive returns even in these circumstances.

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