Day trading and day trader -Day trading is buying or selling of various financial instruments such as stocks(shares), futures, options & currencies, with a goal of making a profit due to volatility in the prices during the day.Thus day trading differs from other style of trading as positions are never held overnight irrespective of profit or loss.Day traders are momentum traders who take profits fast and cut losses even faster and a trade which is entered and exited on the same day, and often within few hours or minutes. The day traders will not hold overnight positions, irrespective of profit or loss. These traders are the ones who bring liquidity and cause increase in supply and demand in the market.Position trading and positional trader -Position trading is opposite of the day trading as the goal is to profit from the move in the primary trend rather than profiting from fluctuations that occur during the day.Positional trader holds trades for an extended period.The position trader is like the investor in stocks with a shorter time perspective, which is not necessarily limited but generally takes a week, months and is not concern with day to day fluctuations.Long term investing and long term investor -Long term investment, as the name indicates is buying of various financial instruments such as stocks(Shares), commodities and currencies with a goal of making profit in the long term. Such an investment calls for fundamental analysis rather than technical analysis.Long term investor may hold positions for several years. Thus a long term trader acts completely opposite as compare to a day trader.It should be noted that, in longer run, long term investors make big money as compared to what is made ever by a day trader, keeping exceptions aside.Advantages and disadvantages of day trading -Advantages -
Increased Leverage - As day trades are closed on the same, margin requirement of such trader are lower. Hence increased leverage can increase your profits if used wisely. It is therefore possible for a trader to maintain a relatively small cash in his or her account say Rs. 20,000 and do day trading transactions worth Rs. 1,00,000 to 1,25,000. Note - Brokers generally give exposure of 5 to 7 times (of your deposit lying with them) depending on your volumes and number of other factors.
No overnight risk - As positions are closed prior to the end of the trading session, news and events that affect the next trading day opening prices do not effect trader, thus a trader can have a sound sleep, every night and does not have to worry about how market will open the next day.
Advantages of forced exit - This at times, acts as blessing in disguise. It is better to close a losing position on the same day, without hoping that it would perform better the next day, as many times(but not always) it prevents the loss from becoming larger the next trading day. Also if a position is carried overnight, then the trader has to immediately arrange for the huge margin amount that is required to be deposited with the broker.
Immediate Feedback - Feedback in terms of profits or losses is much quicker i.e the same day by end of trading session than it is in the case of position trades, which may take few days to week.
Profit in any market direction - A day can take advantage of bullish and bearish trend of the market. During bullish trend, he can buy first and during bearish trend he can short sell. Thus, short selling is the advantage in hands of a day traders or a derivatives trader as compared to a delivery based trader or an investor., who has to buy first, take delivery of the shares and sell it later on.
Low transaction cost - Low transaction cost i.e brokerage is lowest in case of day trading transactions as compared to delivery based transactions. Generally delivery based transaction brokerage is in the range of 0.25% or 0.50% both while buying and selling where as brokerage incase of day trading is 0.08- 0.15% and that too on one side i.e either buying or selling side.
Disadvantages
It is considered to be very risky as one cannot predict market movements with good accuracy over a long period of time.
Increased Leverage - As day trades are closed on the same, margin requirement of such trader are lower. Hence increased leverage can increase your profits if used wisely. It is therefore possible for a trader to maintain a relatively small cash in his or her account say Rs. 20,000 and do day trading transactions worth Rs. 1,00,000 to 1,25,000. Note - Brokers generally give exposure of 5 to 7 times (of your deposit lying with them) depending on your volumes and number of other factors.
No overnight risk - As positions are closed prior to the end of the trading session, news and events that affect the next trading day opening prices do not effect trader, thus a trader can have a sound sleep, every night and does not have to worry about how market will open the next day.
Advantages of forced exit - This at times, acts as blessing in disguise. It is better to close a losing position on the same day, without hoping that it would perform better the next day, as many times(but not always) it prevents the loss from becoming larger the next trading day. Also if a position is carried overnight, then the trader has to immediately arrange for the huge margin amount that is required to be deposited with the broker.
Immediate Feedback - Feedback in terms of profits or losses is much quicker i.e the same day by end of trading session than it is in the case of position trades, which may take few days to week.
Profit in any market direction - A day can take advantage of bullish and bearish trend of the market. During bullish trend, he can buy first and during bearish trend he can short sell. Thus, short selling is the advantage in hands of a day traders or a derivatives trader as compared to a delivery based trader or an investor., who has to buy first, take delivery of the shares and sell it later on.
Low transaction cost - Low transaction cost i.e brokerage is lowest in case of day trading transactions as compared to delivery based transactions. Generally delivery based transaction brokerage is in the range of 0.25% or 0.50% both while buying and selling where as brokerage incase of day trading is 0.08- 0.15% and that too on one side i.e either buying or selling side.
Disadvantages
It is considered to be very risky as one cannot predict market movements with good accuracy over a long period of time.
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