Day Trader – Definition

Cite this article as:"Day Trader – Definition," in The Business Professor, updated July 30, 2019, last accessed October 20, 2020, https://thebusinessprofessor.com/lesson/day-trader-definition/.

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Day Trader Definition

A day trader is a market trader that buys and sells securities within the same trading day. This trader also  takes long and short position in the market that are closed before the end of a trading day. Day trading involves speculating in securities or financial instruments to be traded and capitalizing on price action taken in a trading day.

Day traders can also be called speculators, they engage in day trading solely to make profit. They leverage on price actions and volatility in the market. However, profit is made by accurately which stock or security to trade in and the appropriate time to exit the trade.

A Little More on What is a Day Trader

A day trader can trade as many times as possible in the market if the market conditions are favorable or profitable. Anyone can be a day trader, no criteria but there are certain capital and maintenance requirements they are subject to, according to FINRA and NYSE. Day traders pay certain expenses and trading commissions and this can limit the effectiveness of a day trader if it is not well managed.

All business transactions for a trading day close before the end of the day, in day trading, no position is held overnight. Day trading requires some level of experience and expertise, trading decisions are made based on analytical and technical facts. Price movement, price volatility, and other factors are considered.

There are a number of techniques that day traders use to capitalize on market inefficiencies, these traders are experts at speculating or analyzing market events and leverage on them when appropriate. The common techniques day traders use include; economic statistics, market announcements, trading the news, among others. An opening or a gap in trading price is another way traders benefit from the market. When the opening price for a day differs from the closing price of the previous day, this pass a message to day traders.

Furthermore, assets, stocks, securities or financial instruments that exhibit a great deal of financial strength are targets to day traders. Also, in cases of weak securities, these traders take short positions. Using simulated trades, day traders evaluate their successes and failures.

Here are the key points on day trading that you should know;

  • A day trader executes long and short trades in order to profit from intraday price action and volatility.
  • A day trader takes long and short positions in the market, these positions close before the end of a trading day.
  • Diverse techniques are used by day traders to profit from market inefficiencies caused by purchase and sales or demand and supply.

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