Day trading

Serious Information

Trivia

Day trading refers to the practice of buying and selling stocks (or other financial instruments) for short terms profit making rather than the long term profit making that most broker companies will advise. A gain or loss is made on the difference between the purchase and sales prices. A primary motivation of this style of trading is to reduce the risk of holding a position overnight (where the open price may have significantly changed from the previous day's closing price). Traders performing day trading are called day traders.

During the dot com boom many found it easy to make a living out of trading shares, but when the share collapse arrived they lost huge sections of theuir income. Many had gambled their pensions or life savings. It is a risky business.

Yet the dot com era did not destroy day trading, ComPeer, a market research group revealed data showing that the volume of UK online trades rose by 42 per cent in the second quarter of 2003, to reach 50,000 a day in June. This is not far short of the late 1990s peak of 60,000 trades a day, and contrasts sharply with the daily total of 23,000 seen in February.

Both CFDs and spread betting are ways of taking a stock market position, without actually owning real shares. Prices move in step with the underlying stock, and the only apparent differences when you deal compared with conventional online or telephone stockbrokers are that no stamp duty is payable, and that you typically only have to deposit 10 per cent of the price. CFD menas Contracts For Difference. derivative is trading is another modern idea.
Let’s say you purchased 10,000 Vodafone shares via CFD at 120p each, for a total transaction value of £12,000. You would only have to deposit £1,200 and would effectively borrow the rest from the broker. If the price rose within a few days to 126p, you could sell the CFD having made 6p per share, £600. But because you only had to put up £1,200 your return on the deposit was 50 per cent.

Numerous companies try to provide complex mathematical systems to help a day trader.

Risky side

It can be like gambling addiction. In an inquiry into day trading in 2001, a USA Congressional committee heard evidence from a 28 year-old who resigned his job and ran up $40,000 of credit card debt to day trade, only to lose all the cash in two months. A Chicago waiter with no investment experience lost his entire $200,000 inheritance in four days. An elderly Boston man lost his wife's entire $250,000 savings in a single day. Pensions can be lost. Don't get conned by rising prices into thinking it is easy.

In Japan it seems the shares rises have caused another day trading era -On artcile on the states that story of a woman YUKA YAMAMOTO who dutifully quit work to assume her expected role as suburban homemaker when she married six years ago. But she quickly grew bored at home, and when she saw a television program about online stock investing, she took $2,000 in savings and gave it a try.

Bear Markets are when the shares go down. 27 87 01 Crash | '73-74 Bear | Nikkei Bear of the nineties | 1999 Bear - 05

Bull Markets are when the shares go up. Such occasions were '83-'97, '95-'97

It is commonly stated that 80-90% of day traders lose money. An analysis of the Taiwanese stock market suggests that "less than 20% of day traders earn profits net of transaction costs".

Day trading used to be the preserve of financial firms and professionals and some savvy private investors and speculators, but in recent years has become notoriously common amongst casual traders taking advantage of new facilities offered via the Internet. Established banks such as Natwest in the UK have set up internet websites where a trader can trade whathever share they want on UK stock exchange. This is due to de-regulation.

NASDAQ officially defines a "pattern day trader" as one who places four or more round-trip orders over a five-day period, and of whose total trading activity, day trading comprises 6% or more. A pattern day trader is treated differently from other traders: a broker may allow margin levels as low as 25% as opposed to the usual 50% e.g. a day trader can leverage the $100 in his account to buy $400 worth of stock; a broker may require the trader maintain a minimum liquidation value e.g. if the account value falls below $25,000 no day trading is allowed.

Some of the more commonly day-traded financial instruments are stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest-rate futures, and commodity futures.

Risk tolerance is the amount of risk you are comfortable taking with your day trading and investments. Risk capacity, on the other hand, is how much you can afford to risk financially on your trades. Check out two very useful tools from About Mutual Funds: the Risk Capacity Quiz and the Risk Tolerance Quiz. Use the results of these quizzes as one of the guides you use in your day trading plan.

Paper trading is an excellent way to practice day trading before you jump into it and invest hours trying to earn profits. While some websites offer paper trading services, Paper Trading explains why using these sites isn't the best idea and what you can do to make your paper trading experience more realistic.

History of day trading

Originally, most important USA stocks were traded on the New York Stock Exchange. A trader would telephone a stockbroker, who would relay the order to a specialist on the floor of the NYSE. These specialists would each make markets in only one to five stocks. The specialist would match the purchaser with another broker's seller; write up physical tickets that, once processed, would effectively transfer the stock; and relay the information back to both brokers. Brokerage commissions were fixed at 1% of the amount of the trade, i.e. to purchase $10,000 worth of stock cost the buyer $100 in commissions.

Financial settlement periods used to be long: Before the early 1990s at the London Stock Exchange, for example, one could buy a stock one day, and only pay for it as much as ten working days later.

The reason settlement periods were reduced was to reduce market risk.

One important step in facilitating day trading was, therefore, the founding in 1971 of NASDAQ -- a virtual stock exchange on which orders were transmitted electronically. Another step made day trading of shares potentially more profitable: In 1975 in the USA the Securities and Exchange Commission made fixed commissions illegal, giving rise to discount brokers offering much reduced commission rates.

Thereafter, the systems by which stocks are traded have evolved along with the home computer and the internet. A number of Electronic Communication Networks (ECNs) began to form. These were essentially large proprietary computer networks on which brokers could list a certain amount of securities to sell at a certain price (the asking price or "ask") or offer to buy a certain amount of securities at a certain price (the "bid"). The first of these was Instinet. Instinet or "inet"[3] was founded in 1969 as a way for major institutions to bypass the increasingly cumbersome and expensive NYSE.

The reason for this was that "market makers" had very few obligations to the public. A market-maker is the NASDAQ equivalent of a NYSE specialist. It has an inventory of stocks to buy and sell, and simultaneously offers to buy and sell the same stock. Obviously, it will offer to sell stock at a higher price than the price at which it offers to buy. This difference is known as the "spread". A pure market-maker will not care if the price of a stock goes up or down, as it has enough stock and capital to constantly buy for less than it sells. Today there are about 500 firms who participate as market-makers on ECNs, each generally making a market in four to forty different stocks.

In 1997, the SEC adopted "Order Handling Rules" which required market-makers to publish their best bid and ask on the NASDAQ. [4] The existing ECNs did an about-face and began to offer their services to small investors. New brokerage firms began to emerge which specialized in serving online traders who wanted to trade on the ECNs. New ECNs also arose, most importantly Archipelago (arca) and Island (isld). Archipelago eventually became a stock exchange and in 2005 was purchased by the NYSE. (At this time, the NYSE has proposed merging Archipelago with itself, although some resistance has arisen from NYSE members.) Commissions plummeted; in an extreme example (1000 shares of Google), in 2005 an online trader might buy $300,000 of stock at a commission of about $10, as opposed to the $3,000 commission he would have paid in 1974. Moreover, the trader would be able to buy the stock almost instantly and would get it at a cheaper price.

The ability for individuals to day trade coincided with the extreme bull market in technical issues from 1997 to early 2000, known as the "dot-com bubble". From 1997 to 2000, the NASDAQ rose from 1200 to 5000. Many made huge amounts of profits by buying these stocks in the morning and selling them in the afternoon, at 400% margin rates, the .lost the money.

Techniques
There are six common basic strategies by which day traders attempt to make a profit:

Playing news
Playing news is primarily the realm of a day trader. The basic strategy is to buy a stock which has just announced good news, or short-sell on bad news. Such events provide enormous volatility in a stock and therefore the greatest chance for quick profits (or losses).

Trend following
Trend following, a strategy used in all trading time frames, assumes stocks which have been rising steadily will continue rising, and vice versa. The trend follower buys a stock which has been rising, or short-sells a falling stock, in the expectation the trend will continue.

Range trading
A range trader watches stock that risen off a support price and is falling off a resistance price. That is, every time the stock hits a high, it falls back to the low, and vice versa. Such a stock is said to be "trading in a range". The range trader therefore buys the stock at or near the low price, and sells (and possibly short sells) at the high.

Scalping
Scalping originally referred to spread trading. Today it has come to mean an extremely quick trade for a small profit.

Covering Spreads
Playing the spread involves buying at Bid price and selling at the Ask price. The numerical difference between these two prices is known as the spread. The bigger the spread, the more inefficient the market for that particular stock, and the more potential for profit. This spread is the mechanism that some large Wall Street firms use to make most of their money (as opposed to trade commissions) since the advent of online discount brokerages.

To make the spread means to simply buy at the Bid price and sell at the Ask price. This procedure allows for profit even when the bid and ask don't move at all.

About 75% of all trades are to the upside -- that is, the trader buys an issue hoping its price will rise -- because of the stock market's historical tendency to rise and because there are no technical limitations on it. About 25% of equity trades, however, are short sales.

In 1999 the Financial Services Authority warned on the danger of day trading as the dot com boom grew to a peak.

A Stock Trader or a Stock Investor is a financial markets professional or firm, who buys and sells financial instruments, such as stocks and bonds. The individuals or firms trading in a principal capacity sometimes call themselves stock traders or simply traders. Many people across the world can call themselves stock traders or part-time stock traders, despite of having another profession in parallel with their regular trading activities in the financial markets. When a stock trader has clients, and acts as a money manager or adviser with the intention of adding value to his clients finances, he is also called a financial adviser or manager

Trivia

In 1967 a vide was made on day trading starring "Letter from America's" Alistair Cooke, and former US president Dwight D. Eisenhower .

The BBC runs a celebdaq game where you can try and trade celebrities. Each celebrity is proced accroding to how much media coverage they are getting. They ran a Worldcupdaq for 2006-

Warren Buffett is a famous man who makes money out of share trading but he goes for long term trading.

In 1999 InvestIN Securities is allowed people in the UK to open accounts to trade on the US markets using the Internet. This caused alarm in the UK. The applications were massive in number.

Links on websites on subject

http://www.ise.ie/index.asp The home page of Irish stock exchange

http://www.nasdaq.com/ The homepage of the stock exchange

http://www.cityequities.com/
http://www.moneyweek.com

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