But what is day trading? The Day Trader’s goal (person who practices day trading) is to go back and forth during the day. Traders buy or sell before the market closes so as to have a completely liquid portfolio during trading hours. Closing of the market (called “Overnight”).
The technique will consist of making small capital gains by using a strong leverage effect and multiplying the transactions to maximize the return. Thus the day trader will profit from the volatility of the markets and will be ok with gains of between 0.5 and a few per cent on each transaction. Some investors thus place several dozen orders per day.
Each position closes at the close of the market. The day trader will not hesitate to take losses when necessary. For this, the trader will not wait to have lost 10% on his position. The game aims to make more winning trades than losers and ensure that when they lose, they are as small as possible.
It is still necessary to surround yourself with precautions before embarking on the adventure. In the United States, broker statistics show that 90% of day traders lose money. Here we will try to provide an overview of the basic rules and the questions you will have to ask yourself before tackling this very “sporting” technique.
What capital to start with?
The minimum amount for day trading is not very important. Indeed, unlike traditional stock market investment, you will use the leverage effect (on stocks or futures), which increases your financial possibilities, and you concentrate on a few lines only. It’s not uncommon for the day trader to be positioned on only one stock at a time with maximum leverage.
Consequently, even a modest budget (a few thousand euros) may be sufficient. It will just be sufficient that the brokerage fees do not take too much away from your small winning percentages.
Which broker to choose?
This step represents a difficult choice. Obviously, the brokerage fees are very low; indeed, imagine that the round trip costs you 2% of fees. Since you play on small variations, it will be very difficult for you to recover your expenses and. Therefore, the only person you will enrich will be your financial intermediary.
But beyond the cost of transactions, the quality of service is of paramount importance. You will have to make sure that your broker has fast access, that it is not congested at peak times, that its system is reliable and that you have the possibility in case of difficulty to go through other channels: telephone, mobile.
When you are positioned on a title, every minute counts, the inability to place your order can cost you dearly in the event of high volatility in the market. Likewise, if the transfer of your order to the order book takes 5 minutes, there is little chance that it will be executed under the conditions in which you had decided.
The markets for day trading
Two conditions must be met to indulge in it: liquidity must be important as well as volatility. Liquidity is defined by the number of exchanges that take place each day on security. Several million securities are traded on some shares every day, ensuring that you can enter or exit the security at any time. There is always a counterparty ready to buy back your shares or sell them to you. The same goes for Forex. Futures or currencies represent a very good alternative; these derivative products also offer considerable leverage. These markets thus offer many possibilities for online trading.