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A Beginners Guide to Day Trade: What Is Day Trading?

When entering the world of financial trading, it is important to get an understanding of the different concepts and market styles you may encounter on your journey. In this article, we’ll take a deep dive into day trading, one of the most common ways investors take part in market actions around the globe.

day trading explained .

What Is Day Trading?

Day trading is a dynamic approach where traders engage in the buying and selling of financial assets over the course of a single trading day with the goal of capitalising on swift price fluctuations.

The core objective is to generate profits from short-term movements on the various markets that can be day traded, from forex and stocks to commodities and indices. Day traders employ a diverse array of techniques and strategies to exploit perceived market inefficiencies swiftly.

In day trading, traders execute multiple transactions throughout the trading session, aiming to leverage small price differentials for gains. This differs markedly from the long-term investment strategy, as day traders tend to be less concerned with the intrinsic value of securities and are more focused on exploiting immediate market movements.

The allure of day trading lies in its potential for rapid returns, but it is accompanied by significant risks. Successful day trading necessitates a thorough comprehension of market dynamics and the ability to make swift, well-informed decisions.

In addition, day traders must remain vigilant about market developments, economic indicators, and other factors influencing asset prices throughout the day. Often, when trading CFDs, day traders use leverage, hence trading higher amounts than their initial capital which can amplify potential profits, yet also intensifying potential losses. Consequently, day trading is generally cautioned against for novices and individuals lacking the financial resilience to withstand losses.

How Does Day Trading Work?

Day trading primarily thrives in stock markets and the foreign exchange (forex) arena, where currency pairs are traded.

Day traders generally strive for a keen awareness of events capable of triggering short-term fluctuations in the market. They often rely on news-based trading strategies, a prevalent technique in this domain. Scheduled announcements, such as the release of economic indicators, corporate earnings reports, or changes in interest rates, serve as pivotal moments subject to market anticipation and sentiment.

Markets respond swiftly when these expectations are either surpassed or unmet, often resulting in abrupt and substantial price movements that can favour day traders. For instance, if a company's earnings report exceeds analyst forecasts, its stock price may surge rapidly. Conversely, disappointing economic data can lead to sharp declines in currency values. Day traders adeptly interpret these developments and swiftly execute trades to capitalise on the ensuing market volatility.

In essence, day trading revolves around leveraging rapid market movements induced by news events and other catalysts. By staying attuned to market sentiment and reacting promptly to unfolding events, day traders aim to seize fleeting opportunities for profit within the confines of a single trading day.

Day Trading Markets

A few key markets can be attractive to traders wishing to dip their toes in the pool of CFD day trading. Let’s take a look at the main contenders:

  • Share CFDs: For novices diving into day trading, delving into share CFDs is a common starting point due to the diverse array of underlying shares available to trade. In this arena, the norm entails closing positions by day's end to mitigate the looming threat of 'gapping risk'—a scenario where overnight developments propel a company's share price to open notably higher or lower than its prior close.
  • Indices CFDs: Engaging in day trading with index CFDs mirrors the rhythm of stock trading, as both are bound by market hours constraints. Opting for indices trading involves making judgments as to the collective performance of a group of shares rather than a single company. Take the FTSE 100, for instance, which encapsulates the foremost companies on the London Stock Exchange by market capitalization. Thus, day trading indices offers exposure to a broader slice of the stock market landscape.
  • Forex CFDs: Embarking on a day trading expedition often sees enthusiasts gravitating towards the forex market, enticed by its vast array of currency pairs and high market liquidity. This liquidity aids in facilitating buying and selling of currencies.

Day Trading Example

Day trading CFDs, such as CFDs on underlying shares, involves the buying and selling of CFDs within the same trading day, in an effort to make small profits on each trade by selling at a slightly higher price than the purchase price.

For instance, a CFD day trader might spot a discernible pattern in a stock's price movement, prompting them to open a position on 500 shares at $10 per share. After an hour, the price climbed to $10.10 per share, and the trader moved to close his position with a profit of $0.10 per share, totalling $50 on the trade. Day traders will attempt to repeat moves like this several times to maximise potential profits.

How to Start Day Trading (Tips For Beginners)

Let’s go over some useful day trading tips that may make your transition smoother:

  • Research: Stay updated on day trading techniques and stay informed about market news, such as central bank policy changes and data releases.
  • Budget Money: Determine the amount of capital you're willing to risk on each trade, ensuring you have surplus funds earmarked specifically for trading.
  • Put Time Aside: Understand that day trading demands significant time and attention, requiring you to be available and vigilant throughout trading hours to make the best moves possible with regard to your CFD positions.
  • Time Your Trades: Stay aware of moves on the index your chosen stock is traded on. The beginning of the trading day is often characterised by higher volatility.
  • Implement Smart Orders: Utilise limit orders to specify desired prices for trade execution, reducing the risk of losses on sudden market reversals, and consider employing options strategies for more sophisticated risk management.
  • Stay Calm: Embrace a rational mindset and avoid letting emotions like greed or fear influence trading decisions, prioritising logic and adherence to your predetermined strategy.
  • Stick to Your Plan: Develop and adhere to a well-defined trading strategy, resisting impulsive actions and remaining disciplined in executing trades according to your established plan.

Day Trading Strategies

In CFD day trading, traders employ diverse methods to gain an edge over the market, each with its own associated risks and rewards. Here is one key strategy popular among day traders:

  • Range/Swing Trading: Range or swing trading involves identifying key support and resistance levels to make buy and sell decisions. This strategy offers a balance between risk and reward. While traders can potentially achieve high rewards by correctly identifying price movements within the predetermined range, there is also a higher risk associated with market fluctuations.

Overall, successful day trading requires careful consideration of the risks and rewards associated with each strategy, along with disciplined execution and risk management practices. Traders must assess their risk tolerance, market conditions, and available resources to select the most suitable approach for their trading objectives.

Advantages of Day Trading

Day trading presents several advantages, enticing traders with its potential rewards.

  • The absence of overnight position holding eliminates the risk associated with unexpected news events that could significantly impact market opening prices. By closing positions before the trading day ends, day traders safeguard themselves against potential losses stemming from overnight market fluctuations.
  • Successful day traders can benefit from the expedited compounding of returns on investments. Profits accrued from one trading day can be reinvested the following day, potentially leading to larger gains over time.
  • Some day traders find that they can achieve significant profits with relatively few trades each day, allowing them to conclude their trading activities early and enjoy more leisure time.

Drawbacks of Day Trading

However, the advantages of day trading must be balanced against its inherent risks.

  • Avoiding overnight holding minimises certain risks, but it also means missing out on overnight market events that may result in significant market gaps.
  • The frequent trading characteristic of day trading entails higher transaction costs in the form of charges and fees, potentially eroding profitability.
  • Day trading demands a significant time commitment, requiring traders to closely monitor market activity throughout the trading day. This may prove challenging for individuals with limited availability due to other commitments, such as full-time employment. The intense focus and dedication required for day trading may be incompatible with certain lifestyles, making it impractical or even impossible for some aspiring traders.

In Conclusion

In the realm of financial trading, day trading CFDs (Contracts for Difference) stands out as a prevalent approach, offering investors an opportunity to actively engage in the market and capitalise on short-term price movements. Day traders aim to buy and sell CFD contracts within a single trading day, leveraging market volatility to generate profits. This dynamic strategy requires traders to remain vigilant and responsive to market developments throughout the trading session.

Day trading CFDs presents several advantages. The absence of overnight positions mitigates the risk of unexpected news events impacting market opening prices, providing traders with a sense of security. Furthermore, successful day traders can benefit from the potential for expedited compounding of returns, reinvesting profits swiftly to amplify gains over time.

However, the allure of day trading CFDs is tempered by inherent risks. While avoiding overnight positions may reduce certain risks, frequent trading incurs higher transaction costs, potentially diminishing overall profitability. The demanding time commitment required for day trading CFDs may also pose challenges for individuals with other obligations, such as full-time employment.

In essence, day trading CFDs offers an opportunity for traders to actively participate in the financial markets and potentially generate returns. However, success in day trading CFDs requires careful consideration of associated risks, disciplined execution, and a thorough understanding of market dynamics. Aspiring traders must weigh the potential benefits against the challenges, recognizing that alternative trading strategies may offer greater flexibility and long-term viability. Ultimately, navigating the complexities of day trading CFDs demands a blend of skill, resilience, and informed decision-making.


Is day trading profitable?

Day trading may be profitable for skilled and disciplined traders, but success depends on factors like market conditions, strategy, and risk management given that CFD trading is risky.

Is day trading suitable for beginners?

Day trading can be challenging for beginners due to its fast-paced nature and high risk. It requires a solid understanding of market dynamics and disciplined execution.

Is day trading illegal?

Day trading is legal.

What is the best day & time to day trade?

The best time to day trade depends on the market being traded and individual trading preferences. Generally, the most active and volatile periods are during market opening hours and around major economic releases.

How much money do you need to start day trading?

The amount of capital needed to start day trading varies, but most brokers require a minimum account balance. Additionally, traders should have enough funds to cover potential losses and meet margin requirements.

What's the difference between day trading and swing trading?

Day trading involves buying and selling assets within the same trading day, aiming to capitalise on short-term price movements. Swing trading, on the other hand, involves holding positions for several days or weeks to profit from medium-term price fluctuations.

Which markets can be day traded?

Various markets can be day traded, including stocks, forex, commodities, and indices. The choice depends on individual preferences, market conditions, and trading strategies.

What are the risks of day trading?

Day trading carries risks such as market volatility, leverage magnifying losses, and emotional decision-making. Traders may also face the risk of incurring substantial losses if they lack proper risk management strategies.

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