What Is Day Trading?

Day trading can be defined as the practice of either buying and selling (or selling and then buying back) a stock within the same day.

This is done so that the shares bought do not have to be paid for, or the shares sold do not have to be delivered. A profit or loss is made on the difference between the purchase and sale price and vice versa.

So much attention has been paid to the risks of day trading that it is worth asking the question...

Is day trading for you?

Here are a few things you should keep in mind when it comes to day trading.

Day trading can be financially rewarding. However it is one of the most risky and challenging forms of trading. Like any venture involving money you need to be willing to spend many months or even years learning how to be successful.

Because of the short period of time that trades are held you have a very small margin of error. Your goal is to buy and quickly turn around and sell at a higher price. Although this sounds easy, even people who come from highly educated fields such as medicine, education, and mathematics have been known to consistently lose money, year after year.

Day trading requires a great deal of mental and physical strength. You will be sitting in front of your computer everyday and possibly not making money. The highs and lows of this present a challenge that can affect your judgment.

Day traders have to spend a significant amount of money on computer hardware, software and data feeds. You may well need multiple flat screen monitors and expensive real time data feeds. You have to continually pay brokerage fees and invest in suitable education in order to learn professional-level systems and strategies. You will also have to pay a substantial amount of your earnings on taxes. And to get started you will need to maintain a minimum balance of $25,000 with your brokerage firm

You must deal with administrative tasks which have nothing to do with trading. Federal tax laws governing day trading in the U.S. are complex. As a day trading you can have hundreds or perhaps even thousands of transactions each year. Each of those transactions has to be reported to the IRS when filing your tax returns. Ask your own tax expert for full details.

So, why do it?

Because when you are making profitable trades the highs are the highest feelings you will ever experience. You are your own boss. You work when you want and you can take time off when you want to.

And let's face it, you can make a lot of money day trading which is the main motivation for most people anyway.