There are probably as many warnings about
embarking on a career as a day trader as there are about drinking
or smoking!
Day traders are supposedly responsible for creating extreme
market volatility, are generally treated with a degree of contempt
by the longer term traders and viewed as gamblers rather than
investors.
The fact is that it takes all types of people to form a market;
some of us have a medium to long term strategy with our money
whilst others are looking to try and make money over a shorter time
scale.
It would be a less liquid market without them
Without day traders the liquidity available for the medium and
longer term trader would certainly be poorer, resulting in trades
executed as worse levels and markets having less regular trading
patterns making it more difficult for the technical trading
community.
Day trading or active trading is where retail and professional
traders place orders into the market with the intention of keeping
the trades for a short period of time, in some instances a matter
of minutes, and to ensure that positions are square at the end of
each trading session so that they are not exposed to overnight
risk.
Many futures and foreign exchange brokers will afford day
traders higher levels of leverage (day traders will often
pay lower margin rates and have to deposit less in their
account) on the proviso that no positions are left open once
the markets have closed.
Discipline and risk management are vital
When day trading it is essential to remain disciplined
and to risk only a small percentage of your total balance (many
teachers would advocate a maximum risk per trade of just 2% of your
account balance). Nearly every day trader will also use a full
range of risk management tools to assist in the management of their
positions.
Don't believe everything you hear
Day trading is growing in popularity, especially amongst new
traders who are lured by the promises of quick wins and fail safe
trading systems .There are many stories about day traders making
huge profits from the markets in incredibly short periods of time
but it is important to remember that for every winner in the market
there has to be a loser and that whilst some of these stories may
be true the reality is that it takes time to become a successful
day trader.
A considered approach to the markets, whether you are a day
trader or long term trend trader, is always advisable and a full
understanding of the potential underlying volatility of a market is
vital before placing any new trade.
Tip: A successful day trader will need to be paying as
little in commission and fees as possible so it's worth researching
the different brokers before you start and get a good understanding
of the costs involved. Low commissions are nothing without a
reliable trading platform so make sure your broker has a solid
system and a good phone support service just in
case.