Day Trading Defined
Day Trading Defined
All exchange markets in the world are divided into day trading and after hours trading. If this sounds very sophisticated, it really is not. This simply means is that there is a time frame division for the trading being done. One is done during normal trading hours, while the other one is done after all conventions on the trading floor are put away. Normal trading hours basically run from
In fact, ringing the bell to announce the opening of the trading day (like the one in the NYSE or New York Stock Exchange) is now a common and sometimes highly publicized practice. This is an honorary ritual often awarded or asked of from high ranking or known personages.
Over the years, all the other known practices of day trading became slowly established in order to be the (actual or virtual) preserve of many financial firms, casual speculators and professional investors. In 1975, in order to further safeguard the companies who engage in massive financial trading in the exchange markets, the SEC made fixed commission rates illegal for day trading.
Prior to 1975, all commissions (regardless whether the broker or hired day trader was a professional or not) were pegged at 1%. So for a $100,000 worth of stock, a buyer had to shell out additional $1,000 in commission. This severely limited more massive sales and re-sells since a good portion of the monetary funds was literally being funneled into single individuals only. Just imagine how much one company should spend should they decide to buy 1 million dollars worth of British pounds…
With fixed commissions gone, companies were able to avail of discount rates for brokerage services, and thus devote more financial resources into the actual trading itself. This also encouraged other companies who previously shunned the exchange market to actively participate with their own hired day traders or brokers. These days, companies often utilize the services of day traders who have extensive background in equity investment and fund management. Professional brokerage services can also be availed of, but commissions are now based on how much the paying buyer is willing to buy, and how often they wish to engage in trading.
Day trading, per se, is not an entirely active 9-4 job. Some traders prefer only to trade when a specific product or market is up for grabs. Other (more speculative) traders prefer to buy and sell, re-sell and short sell smaller quantities of commodities, ensuring the maximum amount of profit and almost nothing else. The Internet has greatly helped the casual traders and speculators, by letting them their share of profits. This is usually done by simply bypassing the middle man (brokers) and getting directly (or virtually) through business entities that practice OTC or over the counter trading.
Examples of the financial instruments commonly exchanged in day trading are: currencies, futures contracts, stock options, stocks, etc. Derivatives like equity index futures and commodity are also common.
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