Day Trading – Introduction
A Day trading or intraday trading is buying or selling security – stock/ commodity/ Index/ currency within a single day. Typically day traders use momentum in stocks or commodities or forex to buy or sell. Thus, a intraday trader buys and sells securities within the day like buying or short selling and selling or short covering vice-versa in the securities before the close of the markets in the specific day.
Usually day traders are well-informed and well-funded. The day traders typically are speculators, who bet on short term moves with an intent to benefit from it within the day.
Reasons for Day Trading
There are various reasons why people do day trading.Some of them are as follows:
- Retail traders – who do trading for living.
- Arbitragers – institutions and some individuals who trade or scalp for small gains.
- Fund Managers – Some hedge fund managers hedge their portfolios and plan their trading strategies to benefit from day trading.
Thus, so frequently intraday traders are termed as speculators who speculate for short term gains.
Most often day traders use short term trading strategies by application of technical analysis, fundamental news or statistical methods to profit from them.
Therefore, almost all day traders commonly use technical analysis, fundamental analysis and/or statistical analysis methods in their trading. Some traders take Intraday trading tips from technical analysis experts to trade and earn from secondary markets.
Benefits from Day Traders
The Day traders provide two benefits to the secondary markets which are as follows:
- First of all, day traders add liquidity in various financial asset classes like stocks, commodities, forex and Indices but particularly in stocks. As a result, day traders or in the sense speculators are important part of secondary markets.
- Secondly, day traders keep markets in an efficient way by scalping and doing arbitrage. An arbitrage is nothing but scalping or trading large quantities of stocks for small profits with small risk. Because of arbitragers who typically are brokers, institutions, market makers etc., liquidity is increased in markets.
As a result, day traders are like oxygen to the markets. Also intraday trading, if done in an efficient and systematic manner would give good results for traders. But, one should be well informed – learn before putting real money and be adaptable to succeed in Day Trading, where risk and reward both are higher.
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