Day trading

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Day brokerage day is speculation in securitiesspecifically buying and selling financial instruments within the same trading day. Brokerage day, day trading is trading only within a day, such that all positions are closed before the market closes for the trading day.

Many traders may not be so strict or may have day trading as one component of an overall strategy. Traders who participate in day trading are called day traders. Traders who trade in this capacity with the motive of profit are therefore speculators.

The methods of quick trading contrast with the long-term trades underlying buy and hold and value investing strategies. Some of the more commonly day-traded brokerage day instruments are stocksoptionscurrenciesand a host of futures contracts such as equity index futures, interest rate futures, currency futures and commodity futures. Day trading was once an activity that was exclusive to financial firms and professional speculators.

Many day traders are bank or investment firm employees working brokerage day specialists in equity investment and brokerage day management. However, with the advent of electronic trading brokerage day margin tradingday trading is available to private individuals. Some day traders use an intra-day technique known as brokerage day that usually has the trader holding a brokerage day for a few minutes or even seconds.

Most day traders exit positions before the market closes to avoid unmanageable risks—negative price gaps between one day's close and brokerage day next day's price at the open. Another reason is to maximize day trading buying power. Brokerage day traders brokerage day borrow money brokerage day trade. This is called margin trading.

Since margin interests are typically only charged on overnight balances, brokerage day trader may pay no fees for the margin benefit, though still running the risk of a margin call.

The margin interest rate is usually based on the broker's call. Because of the nature of financial leverage and the brokerage day returns that are possible, day trading results can range from extremely profitable to extremely unprofitable, and high-risk profile traders can generate either huge percentage returns or huge percentage losses. Because of the high profits and losses that day trading makes possible, these traders are sometimes portrayed brokerage day " bandits " or " gamblers " by other investors.

The common use of buying on margin using borrowed funds amplifies gains and losses, such that substantial losses or gains can occur in a very short period of time. In addition, brokers usually allow bigger margins for day brokerage day. Because of the high risk of margin use, and of other day trading practices, a day trader will often have to exit a losing position very quickly, in order to prevent a greater, unacceptable loss, or even a disastrous brokerage day, much larger than his or her brokerage day investment, or even larger than his or her total assets.

Originally, the most important U. A trader would contact a stockbroker, who would brokerage day the order brokerage day a specialist on the floor of the NYSE. These specialists would each make markets in only a handful of stocks. The brokerage day would match brokerage day 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.

One of the first steps to make day trading of shares potentially profitable was the change in the commission scheme. In brokerage day, the United States Securities and Exchange Commission SEC brokerage day fixed commission rates illegal, giving rise to discount brokers offering much reduced commission rates.

Financial settlement periods used to be much longer: Before the early s at the London Stock Exchangefor example, stock could be paid brokerage day up to 10 working days after it was bought, allowing traders brokerage day buy or sell shares at the beginning of a settlement period only to brokerage day or buy them before the end of the period hoping for a rise in price.

This activity was identical to modern day trading, but for the longer duration of the settlement period. But today, to reduce market risk, the settlement period is typically two working days. Reducing the settlement period reduces the likelihood of defaultbut was impossible before the advent of electronic ownership transfer. Brokerage day systems by which stocks are traded have also evolved, the second half of the twentieth century having seen the advent of electronic communication networks ECNs.

These are 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 or "inet"which was founded in as a way for major institutions to bypass the increasingly cumbersome and expensive NYSE, also allowing them to trade during brokerage day when the exchanges were closed.

Early ECNs such as Instinet were very unfriendly to small investors, because they tended to give large institutions better prices than were available to the public. This resulted in a fragmented and brokerage day illiquid market. The next important step in facilitating day trading was the founding in of NASDAQ —a virtual stock brokerage day on which orders were transmitted electronically.

Moving from paper share certificates and written share registers to "dematerialized" shares, computerized trading and registration required not only extensive changes to brokerage day but also the development of the necessary technology: These developments heralded the appearance of " market makers ": A market maker 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". The market maker is indifferent as to whether the stock goes up or down, it simply tries to constantly buy for less than it brokerage day. A persistent trend in one direction will result in a loss for the market maker, but the strategy is overall positive otherwise they would exit the business.

Today there are about firms who participate as market makers on ECNs, each generally making a market in four to brokerage day different stocks.

Another reform made was the " Small Order Execution System ", or "SOES", which required market makers to buy or sell, immediately, small orders up to shares at the market maker's listed bid or ask. In the late s, existing ECNs began to offer their services to small investors. New brokerage firms which specialized in serving online traders who wanted to trade on the ECNs emerged. Archipelago eventually became a stock exchange and in was purchased by the NYSE.

Moreover, the trader was able in to buy the stock almost instantly and got it at brokerage day cheaper price. ECNs are in constant flux. New ones are formed, while existing ones are bought or merged. As of the end ofthe most important ECNs to the individual trader were:.

This combination of factors has made day trading in stocks and stock derivatives such as ETFs possible. The low commission rates allow an brokerage day or small firm to make a large number of trades during a single day. The liquidity and small spreads provided by ECNs allow an individual to make near-instantaneous trades and to get favorable pricing. The ability for individuals to day trade coincided with the extreme bull market in technological issues from to earlyknown as the Dot-com bubble.

In March,this bubble burst, and brokerage day large number of less-experienced day traders began to lose money as fast, or faster, than they had made during the buying frenzy. The NASDAQ crashed from back to ; many of the less-experienced traders went broke, although obviously it was possible to have made a fortune during that time by brokerage day or playing on volatility. In parallel to stock trading, starting at the end of the s, a number of new Market Maker firms provided foreign exchange and derivative day trading through new brokerage day trading platforms.

These allowed day traders to have instant access to decentralised markets such as forex and global markets through derivatives such as contracts for brokerage day. Most brokerage day these firms were based in the UK and later in less restrictive jurisdictions, this was brokerage day part due to the regulations in the US prohibiting this type of over-the-counter trading.

These firms typically provide trading on margin allowing day traders to take large position with relatively small capital, but with the associated increase in risk. Retail forex trading became a popular way to day trade due to its liquidity and the hour nature of the market. The following are several basic strategies by which day traders attempt to make profits.

Besides these, some brokerage day traders also use contrarian reverse strategies more commonly seen in algorithmic trading to trade specifically against irrational behavior from day traders using these approaches. It is important for a trader to remain flexible and adjust their techniques to match brokerage day market conditions.

Some of these approaches require shorting stocks instead of buying them: There are several technical problems with short sales—the brokerage day may not have shares brokerage day lend in a specific issue, the broker can call for the return of its shares at any time, and some restrictions are imposed in America by the U. Securities and Exchange Commission on short-selling see uptick rule for details. Some of these restrictions in particular the uptick rule don't apply to trades of stocks that are actually shares of an exchange-traded fund ETF.

Trend followinga strategy brokerage day in all trading time-frames, assumes that financial instruments which have been rising steadily will continue to brokerage day, and vice versa with falling.

The trend follower buys an instrument which has been rising, or short sells a falling one, in the expectation that the trend will continue. Contrarian investing is a market timing strategy used in all trading time-frames. It assumes brokerage day financial instruments which have been rising steadily will reverse and start to fall, and vice versa. The contrarian trader buys an brokerage day which has been falling, or short-sells a rising one, in the expectation that the trend will change.

Range trading, or range-bound trading, is a trading style in which stocks are watched that have either been rising off a support price or 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", which is the opposite of trending. A related approach to range brokerage day is looking for moves outside of an established range, called a breakout price moves up or a breakdown price moves downand assume that once the range has been broken prices will continue in that direction for brokerage day time.

Scalping was originally referred to as spread trading. Scalping is a trading style where small price gaps created by the bid-ask spread are exploited by the speculator. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds. Scalping highly liquid instruments for off-the-floor day traders involves taking quick profits while minimizing brokerage day loss exposure.

The basic idea of scalping is to exploit the inefficiency of the market brokerage day volatility increases and the trading range expands. When stock values suddenly rise, they short sell securities that seem brokerage day. Rebate trading is an equity trading style that uses ECN rebates as a primary source of profit and revenue.

Brokerage day ECNs charge commissions to customers who want to have their orders filled immediately at the best prices available, but the ECNs pay commissions to buyers or sellers who "add liquidity" by placing limit orders that create "market-making" in a security.

Rebate traders seek to make money from these rebates and will brokerage day maximize their returns by trading low priced, brokerage day volume stocks. This enables them to trade more shares and contribute more liquidity with a set brokerage day of capital, while limiting the risk that brokerage day will not be able to exit a position in the stock.

The basic strategy of news playing is to buy a stock which has just announced good news, or brokerage day sell on bad news. Such events provide enormous volatility in a stock and therefore the greatest chance for quick profits or losses. Determining whether news is "good" or "bad" must be determined by the price action of the stock, because the market reaction may not match the tone of the news brokerage day. This is because rumors or estimates of the event like those issued by market and industry analysts will already have been circulated before the official release, causing prices to move in anticipation.

The price movement caused by the official news will therefore be determined by how good the news is relative to the market's expectations, not how good it is in absolute terms.

Keeping brokerage day simple brokerage day also be an effective methodology when it comes to trading. These traders rely on a combination of price movement, chart patterns, volume, and other raw market data to gauge whether or not they should take a trade.

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A brokerage firm , or simply brokerage , is a financial institution that facilitates the buying and selling of financial securities between a buyer and a seller. Brokerage firms serve a clientele of investors who trade public stocks and other securities, usually through the firm's agent stockbrokers. The staff of this type of brokerage firm is entrusted with the responsibility of researching the markets to provide appropriate recommendations, and in doing so they direct the actions of pension fund managers and portfolio managers alike.

These firms also offer margin loans for certain approved clients to purchase investments on credit , subject to agreed terms and conditions. Traditional brokerage firms have also become a source of up-to-date live stock prices and quotes.

A discount broker or an online broker is a firm that charges a relatively small commission by having its clients perform trades via automated, computerized trading platforms rather than by having an actual stockbroker assist with the trade.

Most traditional brokerage firms offer discount options and compete heavily for client volume due to a shift towards this method of trading. Other ways to lower costs for these brokers is by executing orders only a few times a day by aggregating orders from a large number of small investors into one or more block trades which are made at certain specific times during the day.

They help lower costs in two ways:. Since investor money is pooled before stocks are bought or sold, it enables investors to contribute small amounts of cash with which fractional shares of specific stocks can be purchased.

This is usually not possible with a regular stockbroker. Many broker-dealers also serve primarily as distributors for mutual fund shares. These broker-dealers may be compensated in numerous ways and, like all broker-dealers in the United States, are subject to compliance with requirements of the US Securities and Exchange Commission and one or more self-regulatory organizations , such as the Financial Industry Regulatory Authority FINRA. The forms of compensation may be sales loads from investors, or Rule 12b-1 fees or servicing fees paid by the mutual funds.

From Wikipedia, the free encyclopedia. Comparison of online brokerages in the United States. Retrieved 10 October British Columbia Securities Commission. Thomas Smith 6 March Regulation of Investment Companies. Lexis Nexis Matthew Bender. Retrieved from " https: Brokerage firms Financial services. Views Read Edit View history. This page was last edited on 8 February , at By using this site, you agree to the Terms of Use and Privacy Policy.