“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 but at the same time day trading can very very risky and you can blow up your account if your are not educated.

Day traders can and do trade everything from stocks to soy. 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.

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.

When day trading its important to understand that the 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.

Happy Trading

John Howell

Tags: Day Trading, eMini S&P 500, Forex

Trading and Investing 4U, in preparing this post, did not take into account the investment objectives, financial situation and particular needs of the investor. Before making any decision about the information provided, you must consider the appropriateness of the information having regard to your objectives, financial situation, and needs, and always consult your advisor. Securities and Derivatives have inherent risks and any comments appearing here are general advice only and can involve high risk investment. Trading and Investing 4U has made every effort to ensure the information is accurate, however its accuracy, reliability or completeness is not guaranteed.

Any advice in this post is General Advice only