What Do Day Traders Do?

Day Trading is a term that is very common in investing circles these days. But if you are new to the industry let me explain a little more about it.

Traditionally people invested in stocks and commodities meaning they did careful analysis on where their favored market will go over the next 6 months to several years.

However now with the invention of computers, the internet and the low cost trading infrastructure it allows people now to enter and exit trades in fractions of a second. Fractions of seconds are a little beyond the realm of this article, however to enter and exit a trade that you have had on for minutes is quite possible from home. I am a professional proprietary trader and have been for 8 years. I trade futures contracts and very often I will be in trades for only 6 or 7 seconds.

There are many many different techniques used to decide when to enter or exit a trade which couldn't possible all be discussed in this article, although i talk about them more on my free website. But some people would be looking to jump on momentum if there is a fast move in a market, other people looking to wait for quiet times in the market and just buy and sell back and forth whilst the market is in a tiny range. Then there are techniques such as spread trading (not to be confused with spread betting) which is when you buy one market and sell another closely correlated market if their relationship moves out of its historical range

So broadly speaking day trading means you are not holding any positions overnight, you get in and out of a trade on the same day.

The profits and losses from day trading can be a lot greater than traditional investing, because you are using a lot of leverage. This means you are essentially borrowing money from your broker to trade by placing a small deposit with them each day. They will give you the means to buy and sell large quantities of a commodity based on this deposit. So it is possible to make a lot of money taking just the smallest fraction of a movement from the market.

I have worked in professional trading firms all my career and some of the amounts made are mind boggling. I have seen people make 20-30k in a day and much more. However whenever there is reward there is also risk. You should not attempt to be involved in day trading unless you have studied hard and have a game plan in place because when things go wrong they can go wrong very quickly. The key is to accept you are wrong early and cut your losses. I typically will only let a trade go 1 or 2 ticks against me before i get out (a tick is the minimum price movement a market can go). There are a lot of free demo platforms with brokers which you can find on the web, this allows you to practice techniques without risking real money. YOU MUST NOT trade with real money until you have got to a position where you make money consistently on a demo platform.

You must also shop around for the broker that gives you the lowest commission rate. As when you are paying $2 every time you enter or exit a trade this will add up. I typically will spend $300 - $400 a day on commissions so I need to be making at least that in trading profits to make money.

But it is a fascinating and potentially very lucrative world and am happy to answer any further questions at my site.

I have been a professional proprietary trader for 8 years and am happy to give free advice at my website http://www.beingatrader.com

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