Day Trading

What is Day Trading?

What is Day Trading?

What is Day Trading?: Day trading is simply the buying and selling of any financial instrument in the same trading session. This is different from investing or swing trading. In the former, the instrument, usually a stock or bond, is held for an extended time, sometimes many years. Swing trades extend over days, weeks and sometimes even months.

Day traders seek to capitalise and profit from the many price moves that occur in most instruments every trading session. For example, there have been many days when the Dow Jones Industrial Index has moved by more than 100 points. A move of that magnitude can generate literally millions of dollars in profits for an astute and capable day trader.

Day traders can and do trade everything from stocks to soy beans, currencies to corn and metals to market indices. Iamadaytrader.com coaches trade Commodity Futures and Foreign Exchange currencies. Futures, simply, refer to a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. Specifically, they trade market indices around the world and currencies (commonly known as Forex or FX).

Most people believe that investing in property or shares is “safe” and that day trading is only suitable for the mega-rich or criminally insane. But the reality is that trading futures allows for easy entry on short or long positions. Those holding shares in a bear market (a prolonged period in which investment prices fall, accompanied by widespread pessimism) are actually in a much more precarious position. Volume often dries up making selling difficult. That’s why prices fall! Sellers drop their ‘ask’ in order to attract bids from buyers.

Electronically traded futures markets such as the eMini S&P 500 and the DJ EuroSTOXX 50 are among the most liquid in the world. Entering and exiting a position is virtually instantaneous. Forex turnover is an estimated 3 trillion dollars a day. Slippage, where you achieve a lower sale price than asked, is actually very rare.

What is Day Trading? Futures contracts allow for highly leveraged positions. Of course, if traded without a logical exit strategy, leveraging can quickly contribute to a trader’s demise. However with sensible money management using a strict stop loss strategy, leveraging enables a winning trader to make greater profits with a much smaller risk. The Truth about Day Trading – How to Trade your Way to Financial Freedom explores these strategies in depth.

Brokerage for electronically traded futures contracts is a fraction of the cost of trading shares. The world’s electronically traded futures markets are available 24 hours a day, five days a week. And the really enticing part is that traders can experience it all from the comfort of their home using a typical home computer.

What is Day Trading and How Does It Work?

What is day trading when it comes to execution? To begin with, day traders use various technical analysis tools, chart patterns, and trading indicators to make informed decisions. They focus on liquidity, volatility, and trading volume to determine the best entry and exit points. Additionally, common strategies include scalping, momentum trading, and breakout trading. Successful traders rely on real-time data and advanced trading platforms to execute trades swiftly.

Benefits of Day Trading: Why Do Traders Choose This Approach?

  • Quick Profits – Traders can generate returns within hours or minutes by capitalizing on small price movements.
  • No Overnight Risk – Since all positions are closed before market close, there’s no exposure to overnight market gaps or unexpected news events.
  • Leverage Opportunities – Many brokers offer margin trading, allowing traders to control larger positions with less capital, thereby increasing profit potential.
  • Flexibility – Day trading can be done from anywhere with an internet connection, providing financial independence for experienced traders.

Risks in Day Trading: Understanding the Challenges What is Day Trading?

When trading shares or property, assuming you are not leveraged, you can only lose your initial investment if you make a poor trading decision and price moves against you. Trading futures, on the other hand, carries with it the risk of losing more than your original investment because you are leveraged 100% of the time. However, the risk is easily eliminated by setting, and sticking with, a suitable stop loss strategy.

This strategy is implemented at the time of entry. It is also essential to stay in contact with your trade. As intraday traders, that should be no problem. Using these two simple rules, a sound stop loss strategy and monitoring your position, a trader is able to participate in highly liquid and volatile markets with minimal outlay and at no greater risk than trading stocks or property.

What is Leveraging?

Trading futures with leverage positions enables your money to work much more efficiently. You are able to control a large amount of capital for a fraction of the actual cost, effectively using a down payment, or ‘margin’ to trade. When you sell a long position, or cover a short, you collect or pay the difference between the entry and exit prices without having to outlay the entire contract’s value.

Why is Day Trading a Great Tool to Financial Freedom? It doesn’t matter where you live or what hours you keep, there are markets trading somewhere every minute of every day, five days a week. Readily available internet technology allows virtually anyone to trade on an equal footing with the ‚big players‘. In fact, the days of large financial institutions ‚having an edge‘ are long gone. You can now see what they see as they see it. You can take the same trades they take. But you have one very big advantage… you’re small! What is Day Trading? 

The ‚big players‘ need to buy and sell in large volumes. You don’t. Trading just one or two contracts, from the comfort of your own home, can make you money while they’re still thinking about it. It’s easier than you probably think. The great thing about using trading as your key to financial freedom is the opportunity it allows you to pursue your hobbies and spend time with family and friends.

What is Day Trading? A day trader’s life really is a smorgasbord of opportunities. Full time traders can choose their markets and their times. Part-time traders can choose their markets to fit in with their existing careers. Many traders simply start at 6:00am, trade for two hours, then go and spend time in the garden, play golf or have lunch with friends and then return for another hour or two in the evening.

How can you learn to trade?

What is Day Trading?

What is Day Trading? If you have a broadband internet connection and a computer, you can trade markets anywhere in the world. In fact, you can trade Forex (foreign exchange) any time of day, seven days a week! You can learn how to do this in four to six weeks. In The Truth about Day Trading – How to Trade your Way to Financial Freedom we start you on your way to your trading career by giving you an overview of day trading, how it works and how the masters make great money using tools, tips and strategies which we will share with you too.

If you are inspired by what you will learn from this book, you may choose to contact us for more information, or to set you up on the path to your own financial freedom. Iamadaytrader.com has gone one step further and pairs clients up with their very own trading coach who provides in-depth traders’ education in order to give you the best possible chance of succeeding and remaining profitable as a trader. Remember – success is no accident. It can be learned by anyone, so why not you?

What is Day Trading?: Futures: What Are They? Definition

What is Day Trading? A futures exchange is a central financial exchange where people can trade standardised futures contracts (a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.)

A Brief History Commodity markets have existed for centuries in all countries where producers and consumers needed a common place to trade their cloth and food staples. Initially, cash was the common form of transaction, but increasingly agreements were made to deliver and pay at some time in the future. These agreements came to be known as forward contracts, and allowed both the seller and the buyer to fix a price in the present which would be acceptable to both parties at such time in the future when the actual delivery of the goods was finalised.

The farmer was therefore able to plant his crop, safe in the knowledge that he was guaranteed a return on his time and monetary investment. The buyer also was safe from the possibility of rising prices due to crop shortages caused by adverse weather conditions, etc. Therefore, there was undeniable benefit to both the buyer and the seller to engage in a forward contract. Although there are records of these forward agreements dating back to the Japanese silk and rice trade in the seventeenth century, it is generally accepted that similar transactions originated much earlier. However, most forward contracts weren’t honoured by both the buyer and the seller.
For instance, if the buyer of corn made an agreement to buy corn, and at the time of delivery the price of corn differed dramatically from the original contract price, either the buyer or the seller would back out. Additionally, the forward contracts market was very illiquid and an exchange was needed that would bring together a market to find potential buyers and sellers of a commodity instead of making people bear the burden of finding a buyer or seller. In 1848, the Chicago Board of Trade (CBOT – the world’s first modern futures exchange) was formed. Trading was originally in forward contracts; the first contract (on corn) was written on March 13, 1851. In 1865, standardised futures contracts were introduced. The benefit of standardised futures contracts is that the contract gives the holder the obligation to make or take delivery under the terms of the contract. The official price of the futures contract at the end of a day’s trading session on the exchange is called the settlement price for that day of business on the exchange. The present day futures market retains the basic concept of its agrarian genesis, but has evolved into a far more complex trading vehicle encompassing metals, energy, financial products, and even stock market indices.

What is Day Trading? How Are They Traded?

What is Day Trading? Futures are exchange traded derivatives of underlying instruments, and are always traded on an exchange. For example, the value of an emini S&P 500 futures contract will change in response to corresponding values in the S&P 500 stock index. Traditionally futures contracts have been traded on the floor of an exchange by traders representing brokers and institutions, alongside independent traders called ‚locals‘ who are licensed by the exchange to trade their own account.

While the open outcry system still exists in many exchanges around the world, there is an increasing movement toward electronic matching of trades. Exchanges such as Eurex in Frankfurt, Germany, are totally electronic, with market participants finalising transactions in milliseconds on their personal computers which are linked to the exchange servers (through their brokers) via the internet.

What is Day Trading? Futures contracts are highly standardised, usually by including specifications such as:

  • The underlying asset or instrument. This could be anything from a barrel of crude oil to a short term interest rate.
  • The type of settlement, either cash settlement or physical settlement.
  • The amount and units of the underlying asset per contract. This can be the
  • units of foreign currency, etc.
  • The currency in which the futures contract is quoted.
  • The delivery date.
  • The last trading date.

Market Participants (What is Day Trading?)

Hedgers (individuals and firms that make purchases and sales in the futures market) operate with the attempt to secure the future price of a commodity, which is intended to be sold at a later date in the cash market. By taking a futures position that is approximately equal and opposite to a position the hedger has in the cash market, he or she can offset any adverse effects that weather conditions, economic downturns, war or social upheaval may have on their initial position.

A pig farmer for example, may short sell (the selling of a stock that the seller doesn’t own) pork belly futures to offset the possibility of a fall in anticipated price come market time, while at the same time, a meat processor may buy contracts to insure against a possible future price surge.

Similarly, a retirement fund manager who is nervous about impending economic news may short sell DJ Euro STOXX 50 or DAX futures to offset a stock position he holds in various European exchanges, rather than sell his stock holdings and pay the considerable transaction costs of doing so. If the news is bad and stock prices fall, he will have protected his position by profiting with the corresponding fall in the futures market.

Speculators (a person who trades derivatives, commodities, bonds, equities or currencies with a higher-than-average risk in return for a higher-than-average profit potential).are often blamed for many of the problems that afflict most western economies. With very few exceptions (George Soros, who nearly broke the back of the Bank of England with his currency dealings, and Nick Leeson, whose speculative trading in Singapore caused the collapse of Barings Bank are two) these accusations are without foundation.

Futures markets are very large and complex mechanisms whose workings are largely a mystery to the vast majority of the population. Speculation is the assumption of the risk of loss, in return for the uncertain possibility of a reward. It involves the buying, holding, selling, and short-selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives, or any valuable financial instrument to profit from fluctuations in its price, as opposed to buying it for use or for income via methods such as dividends or interest.

Far from being the source of ill tidings for markets, speculators perform two indispensable tasks: by investing their own capital int o the market they provide liquidity, and thus allow prices to increase in an orderly manner, preventing wild fluctuations when large orders are filled. They also facilitate a levelling of the supply and demand process in cases of shortages and surplus. If a commodity is in short supply, speculative buyers will come in to the market causing prices to rise. This, in turn, puts the breaks on consumption, thereby extending the market life of the goods. Similarly, if a product is over supplied, short sellers will enter the market, effectively driving down prices to a level that makes the commodity attractive enough for buyers to snap up a bargain, thus increasing demand. As Todd Lofton remarks in his book Getting Started In Futures, ‚A futures market without speculators would be like a country auction without bidders – and would work just as well.‘

What is Day Trading? Leveraging & Margins Margin

In the futures market, leverage refers to the ability to control large cash positions with a relatively small capital base. To enter a futures position, a trader need only deposit a fraction of the commodity’s cash value into a margin account with his or her broker. A margin for futures is not a down payment for the commodity, as it can be when investing in shares. A margin deposit carries no rights or ownership, and is simply a security bond to protect the financial security of the marketplace (and your broker to a certain degree). There are basically two types of margin: an initial margin, and a maintenance margin.

An initial margin is the deposit required to initiate either a short (the sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value) or long (the buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value) position in a futures contract. It is a security deposit to ensure that traders have sufficient funds to meet any potential loss from a trade. A maintenance margin is the amount of initial margin that must be maintained for that position before a margin call is generated. Note that a maintenance margin level is NOT in addition to the initial margin. For example, let’s assume that the initial margin required to buy or sell a particular commodity contract is $1,200 and the maintenance margin requirement is $800. Should losses on open positions reduce the funds in your trading account to $750, you would receive a margin call for the $450 needed to restore your account back to the initial $1,200. If the margin call was not answered and the account balance was not immediately restored to the initial margin requirement, the broker would liquidate your position in order to cover the difference.

Leverage (What is Day Trading?)

Trading futures with leveraged positions enables your money to work much more efficiently. You are able to control a large amount of capital for a fraction of the actual cost, effectively using the deposited margin to trade. When you sell a long position, or cover a short, you collect or pay the difference between the entry and exit prices without having to outlay the entire contract’s value.

For example, let’s assume Trader A is a stock trader with US$5,000 to invest. He decides to buy 1,000 XYZ shares at $5.00. Let’s also assume he’s made the correct decision and the share price rises 1% to $5.05. He sells for a total of $5,050 realising a profit of exactly $50.00 or 1% of his original investment. Trader B is a futures trader with a similar US$5,000 to invest. She’s able to buy five $5 mini-Dow contracts using $1,000 per contract margin.

Again assume she’s made the correct decision and the market moves 1% in her favour from 12,000 points to 12,120 points – a difference of 120 points at $5 per point, per contract. The result? Well, 120 points multiplied by $5 equals $600. Multiply that by her five contracts and you’ll see she’s realised a total gain of $3,000 or 60% Return On Investment.

Of course, leverage is a double-edged sword. While gains can be magnified by utilising the power of leverage, so too can losses. That is why futures markets should only be traded using ‚risk capital‘, and not borrowed money or cash which has been put aside to fund life essentials. Margin requirements mean that a trader is essentially already using ‚borrowed‘ capital.
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