Day trading is quickly growing by leaps and bounds and because there is so much interest, a huge number of people are trying to get their feet wet without knowing how to swim. And that, perhaps, is one of the biggest things you need to know if you want to become a day trader. You will be wading in a pool with tons of advanced swimmers, so you really need to learn the basics before diving in. Here is the beginning of what you need to absorb before plunging in.
1. The Difference Between Investing and Day Trading
Day trading is just like the name sounds. It’s fast and furious and it all happens within the course of a single day. Unlike investing where you buy into a market for the long run to watch your investment grow, you will be buying and selling such things as commodities and Forex, sometimes within minutes.
Day trading is not meant for anyone who isn’t able to keep their eyes keenly focused on market movement so it is better for retirees and others who can be available when the markets are open. That brings us to another important point. Knowing when the market is open and closed is vital because you need to move before the day closes out. It is guaranteed that closing numbers will change significantly by the time the market opens the next day.
2. You Will Be Working Through a Brokerage
The first thing you will want to do is research day trading brokerages. You will be setting up an account with them and some traders start with as little as $100. Although most of the big financial institutions work with much, much higher amounts each day, they are professional day traders, so they work with corporate funds. Take the time to research brokerages to see what the minimum amount you can deposit in your account will be and then learn about margins. That brings us to our next point on the list.
3. Understanding Important Terms
There are several very important terms you will need to know. Take the time you need to learn about such things as margins, going long and going short. Speaking of margins, this is an interesting thing to learn. There may be times when you want to literally borrow from your broker and that is a part of what margins are all about. You buy something with that borrowed money and sell it when it goes up as you hope it will. The money made pays back the brokerage first, then the margin that’s left is your profit minus the brokerage’s fee. It’s interesting but something you should be well versed in first.
4. Everything Happens at the Proverbial Speed of Light
Remember, everything happens in the blink of the eye so there is no time to look things up while you have your eyes on the screen (or mobile app) in front of you. You need to move when the time is ripe. Being well-informed and educated puts you at a better vantage point. There is so much more to day trading, but those are the very basics. Remember, it is not an investment strategy but a way to make a profit quickly.
You will not need to wait years to see your capital grow but you will also need to understand that day trading is a volatile market so you could easily lose as well as you can win because you are wagering on market movement. The very best advice you can be given is to choose your brokerage wisely. The best brokers are those who spend time and resources providing you with the information you need to come out a winner.