Day Trading
Day trading most commonly refers to the practice of buying and selling stocks during the day such that at the end of the day there has been no net change in position: for every share of stock bought an equivalent share is sold. A gain or loss is made on the difference sport ween the purchase and sales prices. A primary motivation of day trading is that shares both sold and bought in the same day need neither be delivered nor received, i.e. no settlement need take place.
Day trading is not necessarily more risky than any other trading activity. However, the common use of buying on margin (i.e. using borrowed funds) amplifies gains and losses such that substantial losses or gains can occur in a very short period of time. It is commonly stated that 80-90% of Day traders lose money. An analysis of the Taiwanese stock market suggests that "less than 20% of day traders earn profits net of transaction costs" [1].
Day trading used to be the preserve of financial firms and professionals and some savvy private investors and speculators, but in recent years day trading has become notoriously common amongst casual traders taking advantage of new facilities offered via the Internet.
The NASDAQ officially defines "pattern day trading" as placing four or more round-trip orders over a five-day period.[2] A pattern day trader is treated differently from other traders: a broker may allow margin levels as low as 25% as opposed to the usual 50% e.g. a day trader can leverage the $100 in his account to buy $400 worth of stock; a broker may require the day trader maintain a minimum liquidation value e.g. if the account value falls below $25,000 no day trading is allowed.
Some of the more commonly day traded financial instruments are stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest-rate futures, and commodity futures.
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