If you are looking to invest your money in the stock market, you should be prepared for slightly more risk than with bonds or CDs. Stock prices fluctuate up and down all day long before settling at the close of the market at the end of the day. Day trading is a form of stock trading that takes advantage at the rapidity of the ups and downs of stock prices.
While the stock market is already risky and unpredictable, day trading is even more so. This type of investing is called such because day traders buy and sell stock throughout the day, rather than buying a large chunk of shares then letting it settle and hopefully grow. With business practice rumors and merger gossip flying around like crazy, stock prices and skyrocket then plummet all in a matter of minutes.
Day traders take these daily fluctuations into account when they work the market. They might buy shares in a company that is cheap, then sell them a few minutes later if the price rises, increasing the value of the shares. Basically, day traders don’t hold onto their stock for very long. Because this takes so much attention, successful investors of this type may not even hold another job, so that they can devote their time to following the second-by-second nuances of the stock market.
The U.S. Securities and Exchange Commission does not recommend this type of investing because of the risk that it involves. Although you have a chance of locking in quick profits, you also have a chance to lose large amounts of money. New York Stock Exchange and Financial Industry Regulatory Authority rules state that “pattern day traders” must have at least $25,000 in the bank. They are also relegated to trading only in margin accounts.
If you are looking to participate in this minute-by-minute investing, there are two things that you should look for in stock. First, liquidity is a good thing because it holds a fairly reliable price range. The bid price and the asking price tend to be close, and the slippage is minimal, meaning that the expected price and the price at which something actually trades is similar as well.
Also, you should look at the volatility for a particular company. The volatility is the estimated daily spread of prices for shares in a corporation. Although day traders operate on the idea that these can change quickly and drastically, it is still a good idea to know if others think that the prices will stay in a fairly stable range, just in case.
Day trading, and any other type of investing, can be confusing. For more information on investing and other business practices, check out the interesting and informative Business Directory today.