Q:

What is day trading in the stock market?

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Quick Answer

A day trader is an investor who closes out all of his positions at the end of a day's trading instead of maintaining those investments over the long term. This method can reduce certain types of risk associated with investing, but it can also encourage risky, poorly thought-out trades.

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What is day trading in the stock market?
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Full Answer

One aspect of investing risk is the fact that things can happen outside of trading hours to affect stock prices. For instance, a negative news story about a company might come out while the exchange is closed, causing the price to dip upon the opening of the next day's trading. Day trading is a technique designed to cut out this form of volatility by ensuring that no position is maintained between two subsequent market sessions, allowing the trader full-time control over the investment position.

Since the only gains a day trader can capitalize on occur during a single trading day, this means the chances for profit for any individual sale are slim. Day traders make up for this by performing more trades in a day than other investors, and taking advantage of market information and pattern analysis to identify even the narrowest potential profits available to them. This makes day trading a risky business for amateur investors not privy to the knowledge and analysis their professional competitors use to make their trades.

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