Day trading is the act of buying and selling a security throughout a trading day. Day traders close out all of their trades before the market close and do not hold positions overnight. Although it occurs in any marketplace, day trading is most common in the foreign exchange market and the stock market. Day traders seek to lock in quick profits by taking advantage of the small price movements in highly liquid currencies or stocks. Normally well-educated and well-funded, these traders use high amounts of leverage and employ short-term trading strategies. Day traders have two vital functions in the marketplace: to keep the markets running effectively through arbitrage and provide much liquidity in the markets, especially in the stock market.


Due to its short-term nature, day trading demands certain complex financial services and instruments in the market.

  • Accessibility to the Trading Desk. Day traders in larger institutions or those with huge amounts of money under their care usually have access to a dealing desk, which provides instantaneous order executions to these traders.
  • Various News Sources. Information is the most important commodity when trading, based on the movie Wall Street. Day traders can reap many trading opportunities, so it is a must to be the first to know about big news in the industry. Trading rooms also have access to news agencies and television shows, as well as software, to keep abreast with the latest news events.
  • Analytical Software. This is an expensive necessity for most day traders. Those who heavily depend on technical indicators or swing trades rely more on this software than news. Normally, a software’s features include automatic pattern recognition, genetic and neutral applications, broker integration, and back testing.

Professional Day Traders

Day trading can be done part-time or full time and has two main divisions: institutional day traders and retail day traders.

Majority of day traders prefer working for a large institution because they can access services and resources that they need for their trading, which individual traders cannot. Such traders aim to realize easy profits that can be done from arbitrage opportunities and news items. Because of this advantage, they can capitalize on less risky day trades before individuals traders can act on it.

Unlike institutional day traders, retail traders need not to report to a huge institution. They manage other people’s money or do trades on their own. Although they have strong connection to a brokerage and other resources, they have few access to a trading desk. But having a limited resources prevents these traders from competing directly with traders working for a large institution. Hence, they are forced to take more risks. They often use technical analysis and swing trades with certain leverage.

Prerequisites of a Day Trader

A budding day trader must have the following traits:

  • Knowledge and Experience in the Marketplace: Day traders should understand market fundamentals and do their own research from time to time. Ask seasoned traders for more insights, if needed.
  • Sufficient Capital: It takes money to make money. Day traders use only risk capital or borrow money to use in the market, the money they can afford to lose. Not their survival money, emergency fund, or vacation fund. This is to protect them from a financial devastation, as well as to help them in taking the emotion out of trading.
  • Well-Prepared Trading Plan: To be on top of the game - and remain on the edge - day traders must have a well-written business plan, which includes the following details: short-term and long-term goals, targets, trading hours, setup needs, capital reinvestment, tax considerations, strategies, and metrics, among others. Basically, a trading plan aims to produce consistent profits and limit losses.
  • Discipline: Knowledge, experience, capital, and a trading plan are useless if a day trader has no discipline. This trader must be able to trade emotionless and never act impulsively. Many traders end up losing substantial amount of money because their trades fail to meet their own criteria. Plan the trade and trade the plan - or you won’t achieve success.

A lot of financial planners often tell us that we do not get rich quickly, but we can achieve this slowly over time. So if many investors are turning to day trading, do they want to gain wealth easily? Definitely not, because traders know it is not possible overnight, and it takes a lot of education, skills, and resources in order to become successful in day trading.