What Is Day Trading ?
Day trading refers to the short-term speculation strategy in which financial instruments such as stocks, currencies, futures, commodities are bought and sold within the same day. The main purpose of day trading is to earn profits from short-term price movements. It requires more time, effort, knowledge and focus than swing trading.
Features Of Day Trading
Key characteristics or features of day trading can be highlighted as follows:
- It aims to make profit from short-term price fluctuations
- Traders perform several trades per day
- It has short holding period (from few minutes to few hours)
- It gives focus on trading speed and timing.
Pros Of Day Trading
The main advantages or benefits of day trading can be pointed out as follows:
1. Rapid Returns Potential
One of the main advantages of day trading is that skilled traders can make high returns in short-period with small market movements. But right strategy and right timing necessary.
2. Eliminates Overnight Risk
Day trading avoids the risk of market gaps and negative news and events occurred after trading hours because all positions are closed before the market closes.
3. Independence And Flexibility
Trading activities can be executed from anywhere and trader have full control are not dependent on others. Therefore it is more flexible than swing trading strategy.
4. Multiple Trading Opportunities
Because of high market volatility, it provides traders an opportunity to execute numerous trades in a single day.
5. Suitable For
Day trading is ideal or suitable for active traders because they can give full time and effort in the trading activities.
Cons Of Day Trading
The major drawbacks or disadvantages of day trading can be listed out as follows:
1. High Commission Charge And Transaction Costs
One of the major drawbacks of day trading is that it requires high transactions costs, commission, taxes etc. because of numerous trades within a single day. So, it reduces overall profitability.
2. Not Ideal For New Traders Job Holders
It requires plenty of time, effort, capital as well as knowledge for day trading. Therefore, it may not be ideal for job holders and new traders.
3. Mental Stress
As we know that day trading requires more time, effort, quick decision making skill, constant monitoring monitoring that may lead to burnout and anxiety.
Also Read
Pros And Cons Of Swing Trading
4. High Risk Of Loss
Day trading is more risky than swing trading because traders may loose their money very quickly due to the lack of proper strategy, discipline and consistency.
