If you want to become an active trader, there are basically 2 options: become a day trader, or a swing trader. Both are seeking to take advantage of short-term movements. You can also turn to scalping, which is the most aggressive type of trading. Let’s focus here on Day Trading: its pros and cons and if it’s the trading style that fits you best.
What is Day Trading?
DEFINITION
A day trade is a trade that remains open from a few minutes to a few hours. The goal of a day trade is to capture intraday movements of a trend. With day trading, the main characteristic is that any trade opened during the day must be closed at the end of the day. A day trader should never have an over-night position.
ADVANTAGES
- Potential substantial profits
Opportunities can be found on a daily basis, which gives the trader the chance to make gains every day – as opposed to investment on the long term, where it may take a long time before a trade becomes profitable. - High leverage effect & low capital requirement
Thanks to tight spreads and margin trading, a day trader is able to invest with a small amount of initial capital, with a leverage effect reaching up to 1:400, depending on the market you’re investing in. - High excitement & adrenaline
Day traders have to be reactive and make fast decisions. They are less likely to experience dull moments on the markets, because they open a trade for a short moment to profit from a movement.
DISADVANTAGES
- Potential substantial loss
As traders use high leverage, they can experience huge losses, sometimes even more than the money that they initially deposit. - Variable spreads
Some brokers will apply variable spreads – as opposed to fixed spreads – especially for important news releases, which can increase the operation cost. The spread is your broker’s commission (difference between the ask/bid price). - Slippage
Slippage can lead to huge losses, it occurs when the required price and the price at which the trade is actually triggered are different. This can happen because of breaking news stories or other important events. - Stress & burnout risk
Day trading is very stressful, as traders need to monitor multiple screens to spot trading opportunities and act quickly. It requires a high degree of focus and concentration.
Would you like to know which Day Trading e-Books / Guides really work?
There are several good books out there on day trading the commodities and futures markets. There are also many bad and misleading books that cause traders more trouble than they are worth. Below are some of the best books that I have read on day trading futures. Some of the books include a complete day trading plan, while others mainly discuss specific trading strategies.
