What is a day trader?

A day trader, by law, is someone who actively trades and manages more than $25,000. Day traders get their name because they rarely hold stock trades past one day, and most sell their holdings right at the closing bell. Day traders utilize high leverage and large amounts of money to produce an income on the smaller movements in the day to day trading. Day traders trade huge volumes of stock and hope to make just a few cents on each share. With a buy order of 5000 shares, just a five cent change in price represents $250.

What Day Traders Aren't

Day traders are not long term investors and are not interested in topics like dividends or profit margins. Day traders are generally more interested in the price of the stock and buying where other investors are likely to buy, and selling at a price where others are selling. All of a day trader's profits are produced from a capital gain.

Daytrading Grew with Electronic Trading

Day traders have overwhelmed the stock market as it has gone more electronic. Electronic markets allow day traders to buy and sell stock in just a matter of minutes and make hundreds of dollars on each exchange. Day traders use very high leverage and large amounts of money to turn modest day to day movements into enough money to make an income. Just a few cents per share doesn't seem like much, but when multiplied over thousands of shares, a day trader can make an lucrative income buying and selling throughout the day.

Day traders are the pure definition of speculators, thriving on up-to-the-second stock news and real time quotes to deliver a return on even the flattest of markets. Day trading does take a lot of determination and perseverance as the losses can be just as big as the gains. Short term traders often have to practically glue themselves to their computer screens to watch every movement in stock prices. Thousands of dollars can be lost in just a few short seconds if traders are not careful.

Growing in Popularity by the Day

Day trading has surged in popularity as more people have access to the markets and critical information like top of the line financial news and real time stock brokers. A day trader is rarely interested in carrying trades for longer than a day because they have to borrow money to trade stock. If a trade is carried over into the next day, a full day's interest will be charged to the trader's brokerage account.

Becoming a Day Trader

If you think day trading is for you, try on a small scale first. There are no second chances in the world of trading, as even the best traders have been taken out by what seems like a relatively small change in stock price. It takes plenty of financial background to be able to make it in the short term electronic trading. Many investors who have good luck with long term investing fail to make any money in the short term, where greed and fear can get the better of anyone.