1.   What is day trading?

Introduction:

In the world of financial trading, day trading is a term often associated with excitement, risk and quick decisions. But what exactly is day trading and how does it differ from other forms of trading like swing trading or long-term investing? Let's explore this fascinating world.

What is day trading?

Day trading refers to the buying and selling of financial instruments within one trading day. The aim is to profit from short-term market fluctuations. Unlike longer-term investment strategies, day traders typically close their positions before the end of the trading day to avoid overnight risks.

Example 1:

Let's say a day trader buys 100 shares of company X in the morning at a price of 50 euros per share. During the morning the price rose to 52 euros due to positive news. The trader sells his shares and realizes a profit of 200 euros before fees.

Differentiation from swing trading and long-term investing:

Swing trading differs from day trading in the length of time the positions are held. Swing traders hold their positions for days or weeks to profit from longer-term market trends. Long-term investors, on the other hand, buy and hold securities for months or years in the hope of appreciation and dividends.

Example 2 (Swing Trading):

A swing trader buys shares of Company Y because he has identified an upward trend. He holds the shares for two weeks and then sells them for a significant profit after the price rises as expected.

Example 3 (Long-Term Investing):

A long-term investor buys shares in Company Z, convinced of its solid growth potential. He plans to hold the shares for several years and benefit from price increases and dividends.

Risks and requirements:

Day trading requires quick decisions, a deep understanding of market movements and effective risk management. It is not uncommon for day traders to follow market activity for several hours a day and have to react quickly to changes.

Conclusion:

Day trading can be quite profitable for those who have the necessary skills and are willing to engage intensively with the markets. However, it differs significantly from swing trading and long-term investing in the short holding period of positions and the need to react quickly to market movements.

Almanac -> Link