As one of the new economy's most popular pastimes, day trading generated intense emotions from supporters and detractors alike, and the practice was the source of much controversy. Sometimes referred to with derision as "recreational trading," day trading is a form of stock market activity in which investors, known as day traders, make blitzkrieg runs on several stocks for the purpose of generating very quick gains, but without an eye toward long-term returns. The logic behind day trading holds that the rapid buying and selling of securities in response to very incremental movements can generate quick profits that result in tremendous savings over time.
The practice is premised on the idea of that markets aren't completely efficient. Therefore, small profits can be made by trading in expectation of tiny, incremental movements in stock. Day traders move in to capitalize on the market's corrections. Repeated often enough, these small transactions can escalate into hefty profits by the end of a day's trading, at which point day traders generally liquidate their entire portfolios. Since companies may issue announcements and company news after a day's trading has closed, day traders don't generally want to hold onto stocks overnight, since their line of work entails making split-second buy and sell orders before others can beat them to it.
Day trading requires a nose for minute stock movements, keen trend-spotting skills, and a ready mouse-click. However, professional day traders also rely on tools like sophisticated analysis software and charting programs and a steady stream of financial news. Many online financial portals and content sites feature real-time stock quotes, and some provide charting and chart-customization services. Some electronic trading systems are capable of performing what are known as basket trades, in which several hundred securities are bought and sold in a single transaction. These systems were tailor-made for the day-trading world, in which traders frequently buy and sell thousands of stocks in a single day, and were particularly useful for the big, end-of-the-day liquidations.
User Comments Add a comment…