You probably have a friend who calls himself a day trader and keeps telling you that he's making a killing in the market. But day trading probably isn't what you think it is.
Technically, a day trader is a person who makes use of a brokerage firm to take advantage of market momentum. Trades have a short lifespan and traders typically end the day without any positions at all -- hence "day trading."
However, since the advent of online trading, day trading has come to include the stay-at-home investor. There are an estimated 7.5 million people trading online in the United States (either at home or while at work), whereas bona fide "day traders" account for about 10,000 people.
Whether you're cut out to trade online depends on a number of factors. Here are some things to consider before you put your paycheck in the market, as well as some tips if you think you have what it takes.
Get the right equipment
Trading happens fast, and speed can make the difference between winners and losers, so you'll need a high-speed internet connection.Your interface with the market will likely be through your broker's page. Choosing a broker is a matter of how well their website works, whether they offer solid analysis, and whether their fee structure meets your needs. Some brokers may charge high fees but offer more service, making them a good choice for those who don't make a lot of small trades.
Do your homework
Trading stocks without knowing the rules and the lingo is a little like playing football without knowing how many yards you need to make a first down. Whether you're looking to start with the basics or refine your knowledge, there are several places to go.Reading the financial section of a paper is a good start. Likewise, checking out the FAQ page of a broker's website can help you get started.
When it comes to developing a strategy, you'll have to be a bit more discriminating. There are tons of "foolproof" plans out there, but one way to test the merits of a plan -- without actually investing -- is to employ it for a month and calculate your results as if you had invested. This practice is sometimes referred to as "paper trading."
As for staying current on the market, you'll have to decide which market you're interested in. If you're a beginner, it's probably best to invest in your own country because accounting for currency fluctuations will only add more complexity that you don't need.
Furthermore, to get constant updates on the market, you can subscribe to one of many newsletters and daily alerts. All the top financial sites -- like Motley Fool, CNN and MSN -- offer such free updates.
Figure out what you can afford to lose
Trading isn't for guys with limited resources. Brokerage accounts require a minimum balance of $2,500, and many experts suggest that a beginner put a cap at $3,000. Obviously, that number is open to interpretation for those with a lot of disposable income, but for those who earn $100,000 a year or less, $3,000 caps your loss at one to three paychecks.Losing money is part of the game and you have to be ready for it. If you're the type of guy who quits the minute things don't go your way, trading isn't for you. Even the best traders lose money, but a good trader learns from what happened and gets back in the fight. Being able to do that is largely a matter of your outlook.
Start slowly
If you're new to trading, it's a good idea to start slowly. One way to do that is by swing trading -- holding your trades for a few days. You probably won't make as much money, but you won't be exposed to the same volatility either. While margin trading (trading more money than you actually have in your account) is a good way to earn a bundle, it's not a good way to start.True, you might make money at first, in which case you'll probably kick yourself for not margin trading, but what if you lose money? Trading on the margin increases your risk, but as a beginner, your risk is high enough. Leave margin trading alone until you're more seasoned.
Devote enough time to it
To be successful, you must think of trading as a full-time job. Technically, you can trade on the side, but that's not how the rest of the market does it. While you're doing something else, the market is roaring ahead.As a simple rule, if you have a position in the market, you need to have your head and your eyes in the game. But that doesn't just mean watching the market during market hours. It's important to watch the news every morning, as everything from the price of oil to politics and science impacts the market.
And remember: The market never really closes. After-hours trading is now open to individuals, as well as larger traders. While it works differently than market trading (buy and sell orders are only executed if there is a match, known as crossing markets), after-hours activity is a chance to both make money and get a portal into what the next day's trading might hold.
Keep track of your trades
Come April, whether you've made or lost money, you'll have to tell the IRS what you've been up to. Unfortunately, you can't just tell them how much you made and leave it at that. You'll have to account for each trade, a number that could reach into the hundreds or thousands.The best strategy is to invest in some financial software (ideally, software that comes with your brokerage account) that tracks all of your trades. From there, it's a relatively simple matter to input your investments into your tax return, Schedule D.
don't daydream , day trade
Day trading is a risky business; by some accounts, nearly 90% of day traders fail within three months. Of course, there is failing and chalking it all up to an experience, and then there is losing everything you own.While it might be tempting to go for the fast, easy money, it's best to remember that the odds are against you. That doesn't mean that you can't or shouldn't day trade, just that you shouldn't live and die doing it.
Resources:
http://www.pbs.org/newshour/forum/february99/daytraders1.html
http://www.ehow.com/how_14739_become-day-trader.html
http://money.cnn.com/2002/01/13/investing/column_wastler/index.htm
http://invest-faq.com/articles/trade-after-hours.html
http://www.fool.com/News/mft/2004/mft04122705.htm
Learn How to Trade the Global Futures Markets. SchoolofTrade.com offers descriptive video tutorials and a constructive live trade room that provides step-by-step learning for beginning day traders.
Day Trading Futures
Live Trade Calls
Trading Education