What is a Day Trader? Beginner's Guide

What is a Day Trader? Beginner's Guide

November 4, 2020
1 year ago

Day Traders are investors who carry out their operations on the stock market in the short term. They are the traders who buy and sell on the same day to avoid the financing costs of the interbank market, which are incurred as a consequence of the extra cost of maintaining operations for more than one day. Also, Day Trading is a way to avoid the nightly premiums that many brokers impose for keeping their positions open until the market opens the next day.

Day Traders usually close their positions before the market close- aiming to avoid the unpredictable differences between the closing price and the opening price that could lead to a loss for the investor. Day trading allows traders to set daily goals and meet them in the short term, compared to longer-term investors.

As these traders operate in the short term, they assume a high risk, therefore, in order to minimize risks as far as possible, they tend to concentrate on a small number of values, as volatile and liquid as possible, in order to be able to sell quickly if their forecasts are not met.

To decide which values are the most appropriate for their operations, they mainly use technical analysis since it allows them to understand the price movement better and take the most opportune moment to carry out the purchase and sale. They also take fundamental analysis into account since it is always beneficial to operate with studied and known values.

There are two main types of Day Trader:

  • Scalper: this type of trader performs operations constantly in a short time interval (minutes or even seconds) through automatic investment or high-frequency trading systems.

  • Swing trader: this trader buys and sells over a longer period of time than the Scalper, generally every hour, but could even operate over a duration of several days.

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