The news over the last few months has been dominated by an ongoing back and forth in the stock market. Fortunes have been gained and lost for many through day trading, for both professionals and what many call “retail investors” – your everyday person who doesn’t trade stocks for a living.
With so much attention and potential return, many people are left wondering how day trading actually works.
What is Day Trading?
It’s all in the name: day trading is the practice of buying and selling stocks or securities within a short timeframe. While the majority of people are interested in these securities for long-term investments (buying a home, retiring, tuition for your child), day traders will usually take these actions in a single day.
A day trader is the person who is sitting in front of their computer or on their phone monitoring the directions of the market. Typically, a day trader monitors business newsfeeds for indications of announcements that can cause a sizeable shift in a business’s stock. These announcements could include profit results, new economic reports, banks changing interest rates, corporate buyouts or, especially recently, endorsements by notable individuals like Elon Musk.
When it comes to making a move, day traders primarily consider two different options: will a stock go up or down?
Most day traders look for stocks that have the potential to go up. If a particular stock looks like it will rise in value or if there was recent news that indicates it might soon spike upwards, day traders will purchase a stock and sell it even a few hours later when it has increased in value. There is the risk, however, that the stock still decreases in value and a day trader can lose money.