Man Tapping on his Tablet with the Word Day Trading

Day Trading 101: What is it and How it Works

In the field of trading you will hear the term day trading. But the thing is, do you know what is the meaning of this term? Do you know how does it work?

With this article we will help you understand day trading and day trader.

Day Trading 101 Infographic

What is Day Trading?

Day trading is described as the buying and selling of a security within a single trading day. Day trading can actually occur at any marketplace, but it is most common in the foreign-exchange market and stock market.

It is also known for its short-term trades, which last less than one day. It is an effort to extract a profit from the financial markets.

Moreover, day trading can be a part-time or full-time career, depending on the style of the trader. It can be lucrative for some. However, the long-term success rate is low.

There is a lot of hype around day trading. Some websites promote day trading as a way to get money faster, but some say it is impossible to. However, various day traders around the world find success and make a living off the markets.

Day trading is not a get rich quick career, nor something that takes years to gain consistency. With day trading, you should expect to spend six months to a year honing your skills and practicing strategy before you become familiar and comfortable with it in all conditions.

The only hard part of day trading is that it may work this month, however next month it might not work. Which is why you should adjust constantly, as no two day in the market are the same.

Day Trader

A day trader is the one who engages in long and short trades in an attempt to profit by capitalizing on the intraday movements of a market’s price action. This is a result from temporary inefficiencies in the supply and demand of the movement.

You should know that there are day traders who are very active, making many trades each day. But some are only making one or two trader per day.

Some day traders use leverage to magnify the returns generated from small stock price movements. They are also the one who often closes out all trades before the market close.

In addition, day traders are handicapped by the bid-ask spread, trading commissions, and expenses for real-time news feed and financial analysis packages.

Meanwhile, a successful day trading is a skill that needs extensive knowledge and experience to master. Day traders are well-educated and well-funded.

A day trader is concerned with the price action characteristics of the security, not like other investors who use fundamental data to analyze the long-term growth potential of a corporation in order to make a decision to take a long position in its security.

In addition, day trading needs an access to some of the most complex financial services and instruments in the marketplace. Day traders require:

Multiple News Sources

News is the one of the sources which provides majority of opportunities day traders capitalize on. It is important for you, as a day trader, to be the first to know if something big happens.

The typical trading room contains access to the Dow Jones Newswire and other news organizations. Software that constantly analyzes various news sources for important stories are also included.

Access to the Trading Desk

This is typically reserved for traders who work for larger institutions or those who manage huge amounts of money. The dealing desk is the own who provides these traders with instantaneous order executions. This can be important, especially when sharp price movements happen.

Analytical Software

Trading software is an expensive necessity for most of the day traders. Traders who depends on technical indicators or swing traders rely more on software than news.

This software typically contains many features, such as:

  • Automatic Pattern Recognition – This means that the trading platform identifies technical indicators, such as flags and channels.
  • Genetic and Neural Applications – These are the programs that utilize neural networks and genetic algorithms. These two programs will perfect the trading systems to make more precise predictions of future price movements.
  • Broker Integration – Some of these applications even interface directly with the brokerage, which allows for sudden and even automatic executions of trades. This is helpful for eliminating emotion from trading and improving execution times.
  • Back Testing – This lets you look at how a certain strategy would have performed in the past in order to predict more accurately how it will perform in the future.

Man Tapping on his Tablet with the Word Day Trading

Characteristics of Day Trader

Day traders should be well-established and should have in-depth knowledge about the marketplace before becoming a professional day trader.

Here are the four characteristics of a day trader you should know about.

Sufficient Capital

One cannot expect to make money in day trading. That is why day traders use only risk capital, which they can afford to lose. This protects them from financial ruin and helps them eliminate emotion from their trading.


Without discipline a profitable strategy is useless. Various day traders end up losing a lot of money just because they fail to make trades that meet their own criteria.

You should always remember that with discipline success is possible.


A trader needs an edge over the rest of the market, which is why having strategies is important. Day traders used different strategies, such as swing trading, arbitrage, and trading news. These strategies are refined until they produce consistent profits and effectively limit losses.

Knowledge in the Marketplace

Individuals who attempt to day trade without an understanding or knowledge about market fundamentals often lose money in the field. That is why it is important for you to do a research before you day trade to avoid losing money.

Man Holding a Card with Day Trader on it

Advantages and Disadvantages of Day Trading

Here are the advantages of day trading.

You are Your Own Boss

As we all know that a day trader often works alone, independent from the whims of corporate bigwigs. As your own boss, you can have a flexible working schedule and take time off whenever you want. Unlike someone on the corporate treadmill, you can work at your own pace.

Expensive Education is Not Needed

There are various jobs in finance wherein having the right degree is a requirement just for an interview. Meanwhile, with day trading you do not need an expensive education.

As there are no formal educational requirements for becoming a day trader, taking up courses in technical analysis and computerized trading may help you once you became a day trader.

You Can Make Substantial Profits

One of the biggest lure of day trading is the possibility for spectacular profits. However, this may only be a potential for the rare individual who possesses all the traits that are required to become a successful day trader.

Self-Employment Benefits

As a self-employed individual, you can write off certain expenses for tax purposes, which cannot be claimed by any employed individual.

And here are some of the disadvantages that comes with day trading.

There is No Consistent Pay

If you really want to make it, you have to quit your daily job and give up your stable monthly paycheck. From there, as a day trader you must depend entirely on your own skill and efforts to gain enough profit to pay your bills and enjoy a decent lifestyle.

Risk of Substantial Losses

The U.S. Securities and Exchange Commission stated that “Day traders typically suffer financial losses in their first months of trading, and many never graduate to profit-making status.”

As the SEC stated that day traders should only risk money that the can afford to lose, but the reality here is that a lot of day traders suffer huge losses on borrowed cash.

These losses may not only curtail your day trading career, but also put you in substantial debt.

Stress and Burnout

Day trading is stressful because you need to carefully watch multiple screens to spot trading opportunities. Once you spot them, you have to act quickly to exploit them. This should be done every day, and the requirement for such focus can lead you to burning out.

Significant Start-Up and Ongoing Costs

Day traders have to compete with high-frequency traders, hedge funds and other market professionals who already spend millions to gain trading advantages.

In day trading, you have a little choice but to spend heavily on a trading platform, charting software and so on.

Meanwhile, the ongoing expenses are the costs for obtaining live price quotes and commission expenses that can add up due to the volume of trades.

Learn about: Day Trading Strategies for Beginners

Man In Front of His Computer


Day trading is not an easy way to become rich and it is not impossible to gain profits. It takes time just like other trading we have in the field.

If you want to become a professional day trader, learn all the characteristics you need to know to become a well-established day trader.

Becoming successful in day trading does not happen in just a day. You need to work hard for it and learn about all the important details, such as the pros and cons.

If you want to learn new things and learn strategies about the market, BWorldpedia is the site you should visit! We provide profound and useful insights about the market and across a plethora of topics related to it. Also, register an account now with BWorld and start your investment journey.

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