Pattern Day Trader

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Day trading is speculation in securitiesspecifically buying and selling financial instruments within the same trading day. Strictly, day trading is trading only within a day, such that all positions are closed before the market closes for the trading day. Many traders may not be so strict or may have day trading as one component of an overall strategy. Traders who participate in day trading are called day traders. Traders who trade in this capacity with the motive of profit are therefore speculators.

The methods of quick trading contrast with the long-term trades underlying buy and hold and value investing strategies.

Some of the more commonly day-traded financial instruments are stocks que significa day trading, optionscurrenciesand a host of futures contracts such as equity index futures, interest rate futures, currency futures and commodity futures. Day trading was once an activity that was exclusive to financial firms and professional speculators. Many day traders are bank or investment firm employees working as specialists in equity investment and fund management.

However, with the advent of electronic trading and margin tradingday trading is available to private individuals. Some day traders use an intra-day technique known as scalping that usually has the trader holding a position for a few minutes or even seconds. Most day traders exit positions before the market closes to avoid unmanageable risks—negative price gaps between one day's close and the next day's que significa day trading at the open. Another reason is to maximize day trading buying power.

Day traders sometimes borrow money to trade. This is called margin trading. Since margin interests are typically only charged on overnight balances, the trader may pay no fees for the margin benefit, though still running the risk of a margin call. The margin interest rate is usually based on the broker's call.

Because of the nature of financial leverage and the rapid returns that are possible, day trading results can range from extremely profitable to extremely unprofitable, and high-risk profile traders can generate either huge percentage returns que significa day trading huge percentage losses. Because of the high profits and losses that day trading makes possible, these traders are sometimes portrayed as " bandits " or " gamblers " by other investors. The common use of buying on margin using borrowed funds amplifies gains and losses, such that substantial losses or gains can occur in a very short period of time.

In addition, brokers usually allow bigger margins for day traders. Because of the high risk of margin use, and of other day trading practices, a day trader will often have to exit a losing position very quickly, in order to prevent a greater, unacceptable loss, or even a disastrous loss, much larger than his or her original investment, or even larger than his or her total assets.

Originally, the most important U. A trader would contact a stockbroker, who would relay the order to a specialist on the floor of the NYSE. These specialists would each make markets in only a handful of stocks. The specialist would match the purchaser with another broker's seller; write up physical tickets que significa day trading, once processed, would effectively transfer the stock; and relay the information back to both brokers.

One of the first steps to make day trading of shares potentially profitable was the change in the commission scheme. Inthe United States Securities and Exchange Commission SEC made fixed commission que significa day trading illegal, que significa day trading rise to discount brokers offering much reduced commission rates. Financial settlement periods used to be much longer: Before the early s at the London Stock Exchangefor example, stock could be paid for up to 10 working days after it was bought, que significa day trading traders to buy or sell shares at the beginning of a settlement period only to sell or buy them before the end of the period hoping for a rise in price.

This activity was identical to modern day trading, but for the longer duration of the settlement period. But today, to reduce market risk, the settlement period is typically two working days. Reducing the settlement period reduces the likelihood of defaultque significa day trading was impossible before que significa day trading advent of electronic ownership transfer.

The systems by which stocks are traded have also evolved, the second half of the twentieth century having seen the advent of electronic que significa day trading networks ECNs.

These are essentially large proprietary computer networks on which brokers could list a certain amount of securities to sell at a certain price the asking price or "ask" or offer to buy a certain amount of securities at que significa day trading certain price the "bid". The first of these was Instinet or "inet"which was founded in as a way for major que significa day trading to bypass the increasingly cumbersome and expensive NYSE, also allowing them to trade during hours when the exchanges were closed.

Early ECNs such as Instinet were very unfriendly to que significa day trading investors, because they tended to give large institutions better prices than were available to the public. This resulted in a fragmented and sometimes illiquid market. Que significa day trading next important step in facilitating day trading was the founding in of NASDAQ —a virtual stock exchange on which orders were transmitted electronically.

Moving from paper share certificates and written share registers to "dematerialized" shares, computerized trading and registration required not only extensive changes to legislation but also the development of the necessary technology: These developments heralded the appearance of " market makers ": A market maker has an inventory of stocks to buy and sell, and simultaneously offers to buy and sell the same stock. Obviously, it will offer to sell stock que significa day trading a higher price than the que significa day trading at which it offers to buy.

Que significa day trading difference is known as the "spread". The market maker is indifferent as to whether the stock goes up or down, it simply tries to constantly buy for less than it sells. A persistent trend in one direction will result in a loss for the market maker, but the strategy is overall positive otherwise they would exit the business.

Today there are about firms who participate as market makers on ECNs, each generally making a market in four to forty different stocks.

Another reform made was the " Small Order Execution System ", or "SOES", which required market makers to buy or sell, immediately, small orders up to shares at the market maker's listed bid or ask. In the late s, existing ECNs began to offer their services to small investors.

New brokerage firms which specialized in serving online traders who wanted to trade on the ECNs emerged. Archipelago eventually became a stock exchange and in was purchased by the NYSE. Moreover, the trader was able in to buy the stock almost instantly and got it at a cheaper price. ECNs are que significa day trading constant flux. New ones are formed, while existing ones que significa day trading bought or merged.

As of the end ofthe most important ECNs to the individual trader were:. This combination of factors has made day trading in stocks and stock derivatives such as ETFs possible.

The que significa day trading commission rates allow an individual or small firm to make a large number of trades during a single day. The liquidity and small spreads provided by ECNs allow an individual to make near-instantaneous trades and to get favorable pricing.

The ability for individuals to day trade coincided que significa day trading the extreme bull market in technological issues from to earlyknown as the Dot-com bubble. In March,this bubble burst, and a large number of less-experienced day traders began to lose money as fast, que significa day trading faster, than they had made during the buying frenzy. The NASDAQ crashed que significa day trading back to ; many of the less-experienced traders went broke, although obviously it was possible to have made a fortune during that time by shorting or playing on volatility.

In parallel to stock trading, starting at the end of the s, a number of new Market Maker firms provided foreign exchange and derivative day trading through new electronic trading platforms. These allowed day traders to have instant access to decentralised markets such as forex and global markets through derivatives such as contracts for difference. Most of these firms were based in the UK and later in less restrictive jurisdictions, this was in part due to the regulations in the US prohibiting this que significa day trading of over-the-counter trading.

These firms typically provide trading on margin allowing day traders to take large position with relatively small capital, but with the associated increase in risk. Retail forex trading became a popular way to day trade due to its liquidity and the hour nature of the market. The following are several basic strategies by which day traders attempt to make profits. Besides these, some day traders also use contrarian reverse strategies more commonly seen in algorithmic trading to trade specifically against irrational behavior from day traders using these approaches.

It is important for a trader to remain flexible and adjust their techniques to match changing market conditions. Some of these approaches require shorting stocks instead of buying them: There are several technical problems with short sales—the broker may not have shares to lend in a specific issue, the broker can call for the return of its shares at any time, and some restrictions are imposed in America by the U.

Securities and Exchange Commission on short-selling see uptick rule for details. Some of these restrictions in particular the uptick rule don't apply to trades of stocks que significa day trading are actually shares of an exchange-traded fund ETF. Trend followinga strategy used in all trading time-frames, assumes that financial instruments which have been rising steadily will continue to rise, and vice versa with falling. The trend follower buys an instrument which has been rising, or short sells a falling one, in the expectation that the trend will continue.

Contrarian investing is a market timing strategy used in all trading time-frames. It assumes that financial instruments which have been rising steadily will reverse and start to fall, and vice versa. The contrarian trader buys an instrument which has been falling, or short-sells a rising one, in the expectation that the trend will change.

Range trading, or range-bound trading, is a trading style in which stocks are watched that have either been rising off a support price que significa day trading falling off a resistance price. That is, every time the stock hits a high, it falls back to the low, and vice versa. Such a stock is said to be "trading in a range", which is the opposite of trending. A related approach to range trading is que significa day trading for moves outside of an established range, called a breakout que significa day trading moves up or a breakdown price moves downand assume that once the range has been broken prices will continue in that direction for some time.

Scalping was originally referred to as spread trading. Scalping is a trading style where small price gaps created by the bid-ask spread are exploited by the speculator. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds.

Scalping highly liquid instruments for off-the-floor day traders involves taking quick profits while minimizing risk loss exposure.

Que significa day trading basic idea of scalping is to exploit the inefficiency of the market when volatility increases and the trading range expands. When stock values suddenly rise, they short sell securities that seem overvalued.

Rebate trading is an equity trading style that uses ECN rebates as a primary source of profit and revenue. Most ECNs charge commissions to customers who want to have their orders filled immediately at the best prices available, but the ECNs pay commissions to buyers or sellers who "add liquidity" by placing limit orders that create "market-making" in a security. Rebate traders seek to make money que significa day trading these rebates and will usually maximize their returns by trading low priced, high volume stocks.

This enables them to trade more shares and contribute more liquidity with a set amount of capital, while limiting the risk that they will not be able to exit a position in the stock. The basic strategy of news playing is to buy a stock which has just announced good news, or short sell on bad news.

Such events provide enormous volatility in a stock and therefore que significa day trading greatest chance for quick profits or losses. Determining whether news is "good" or "bad" must be determined by the price action of the stock, because the market reaction may not match the tone of the news itself.

This is because rumors or estimates of the event like those issued by market and industry analysts will already have been circulated before the official que significa day trading, causing prices to move in anticipation.

The price movement caused by the official news will therefore be determined by how good the news is relative to the market's expectations, not how good it is in absolute terms. Keeping things simple can also be an effective methodology when it comes to trading.

These traders rely on a combination of price movement, chart patterns, volume, and other raw market data to gauge whether or que significa day trading they should take a trade.

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Trading margins represent a deposit with the broker to protect both the trader and broker against possible losses on an open trade. With this deposit, day traders are able to trade instruments valued much greater than the margin price via leverage. With the general concept of margin in mind, futures trading margins consists of three margin types:. At a high level, Intraday Margin is the minimum account balance required to enter one contract during trading hours.

At its most basic, the Intraday Margin of a product represents the minimum balance an account must maintain per contract while in a trade. The differing margin requirements for the ES and CL primarily stem from the unique characteristics of each instrument. There is generally less liquidity and higher volatility in the CL, so a higher margin requirement is necessary to protect against large moves in the opposite direction of a live position.

As a result, Jane could chose to trade:. While unadvised, Jane could theoretically trade up to 20 contracts of the ES or 10 contracts of the CL at once based on her account size. A market move in the opposite direction of an open position at Full Leverage would likely trigger a margin call from the brokerage trade desk. Under this circumstance, Jane would have the opportunity to satisfy the margin requirements, and continue to trade, by depositing the necessary funds, or face liquidation from the trade desk.

Should liquidation occur, Jane would be responsible for the losses of the trades in addition to a liquidation fee. Traders should always take note of the different Intraday Margin requirements of the contracts they are trading. Information regarding margin requirements, along with other product specs, are available here. With the general concept of margin in mind, futures trading margins consists of three margin types: Intraday Margin for Futures Day Trading At its most basic, the Intraday Margin of a product represents the minimum balance an account must maintain per contract while in a trade.

Since the ES is a more liquid market and has more volume, an equally large move of ticks in the ES would generally occur over a longer period of time. Because more contracts would be traded in a tick ES move, traders have greater opportunities to exit a position before an account is driven into debit, thus the day trading margin for the ES is less than the CL.

As a result, Jane could chose to trade: Next Post Swing Trading: