Day Trading Broker
Day traders utilize a day trading broker and attempt to profit from making many small trades within the same day in order to avoid the possibility of losses which may occur by retaining their positions overnight. Their mindset is one of making a profit by taking advantage of small price movements which occur in the market. Many hold stocks for only minutes or even seconds. Some advertisements for day trading firms take advantage of the erroneous perceptions of people who see day trading as a means of huge profits and easy money. On the contrary, the only guarantees that most seasoned observers offer are the frequent losses and the unpredictable nature of trades.
Although day traders are relatively few in number, their influence is thought to be about a quarter of NASDAQ's daily volume of trades. Day trading firms offer training and access to markets using high speed connections. They also provide entry to NASDAQ Level II and Electronic Communication Networks (ECNs), which are generally out of the reach of regular on line investors. Like all brokers, these firms are registered with the Securities and Exchange Committee (SEC) and must comply with federal securities laws and the rules set by self-regulatory organizations (SROs) in the industry. The SEC seeks to uncover securities violations, and corrects careless practices which are at times found to exist in the areas of general supervision, margin accounts and loans, and the disclosure of balanced information about risks and profits. The SEC defines 'pattern day traders' as traders who buy and sell a particular stock or security in the same trading day and do this more than four times in any five consecutive business days. These traders must maintain an equity balance of at least $25,000 in a margin account. Although day trading firms are required to inquire whether clients have experience in trading or understand the potential risks of this practice, some are somewhat self-serving by emphasizing potential profits. Whether the customer wins or loses, the commissions and fees of the day trading firms are still going to be realized.
True, a day trading broker offers a valuable service. Real-time data is essential to traders, who must take advantage of tiny fluctuations in markets in order to realize a profit. (Free market data may be delayed by several minutes or up to an hour.) Also, direct access brokers allow traders to send orders to ECNs, allowing a trader the benefit of speed, and transaction fees which are much cheaper than those charged by retail brokers. These savings in time and fees allow the trader to cover expenses more readily and respond quickly to opportunities.
The Bible says that "Wealth gotten by vanity shall be diminished: but he that gathereth by labour shall increase." (Proverbs 13:11) Far from the road to easy riches, the job of the trader is very stressful and can be quite expensive. Although access to real time data is usually part of the day trading broker fees, further specialized data (histories, charts, scanning) can add to expenses incurred by training and commissions. It is important for one considering this pursuit to calculate carefully how much profit will be needed to break even. Markets must be watched constantly and decisions made almost instantaneously. Therefore it is necessary to make plans ahead of time as to the limits of buying and selling points which will help guard against disastrous losses. However, careful planning and cautious purchases alone will not guarantee profits. Even professionals with a history of success can fail spectacularly. Even though people are generally creatures of habit, and some investors try to capitalize on seemingly predictable trends, movements in the stock market are individual events, so no expertise gained at a seminar or in a book or computer model can guarantee successful outcomes. If they could, one can bet that those authors, instructors and computer technicians would be using them to gain money rather than spend time selling their products. Think about that.
In summary, the job of the trader is complex and requires one to be both disciplined and flexible. Money which will be spent in trading must be funds which the trader can comfortably live without. There is a single item which observers of the practice of trading are in agreement about: Losses are expected regularly. Many day traders do not last to the point where they make a profit at all. Some end up owing the day trading broker more than they invested. That is definitely something to think about. Care must be taken before signing on with a broker as well. Avoid those who promise easy profits or balk at sharing the history of their own firm's profits or losses. Be sure to check out the registration of each firm with the state securities registrar. One can also see if there is any type of disciplinary history or problems recorded. Make sure to understand the fine print in the contract and that questions are answered fully. Know how to deal with future problems which may arise. Hopefully, these can be settled with the firm's broker or branch manager. Otherwise the problem may be sent on to the state's securities administrator or finally, the Office of Investor Education and Advocacy at the SEC. At each step in the process of trading, it is worth repeating that the responsibility rests on the trader to be involved with planning and insight, as well as to accept responsibility for his or her decisions.
Day Trading FirmsAs the name implies, day trading firms buy and sell stocks and other financial instruments within the course of one twenty four hour period with the hope of quick and easy profits. There are banks and investment agencies that specialize in this type of activity. But there are also individuals who are able to engage in this method of money management on their own thanks to Internet technology. The way that this works is relatively simple. A stock may be purchased early in the hope that it will rise in value as the day progresses. By the end of the day, the trader will sell the stock, hopefully at a quick profit. However, day trading firms may be operating on very thin ice. Borrowed funds may be used to purchase these stocks. If a stock drops in value, the borrowed money will be lost when the stock is sold at the end of the day. The result may be quick profits, but could just as easily be large losses, so the risk to investors is very real. There is nothing illegal about this type of investment activity and it is considered perfectly ethical. Any trader who invests in this way should be prepared to suffer losses. Funds that are risked should be limited to only what an investor can truly afford. Money that is needed for everyday expenses should never be put to this kind of use.
Since money that is used to purchase these financial instruments is borrowed, there can be many risks involved. Day trading firms are not acting as investors in the strictest sense of the word. To invest in something is to show faith over the long haul. These extremely short term investments will generally evaporate into a sale before the sun sets and the market closes. Anyone who is interested in entering this area of investing should know that day trading can be an extremely stressful job. With multiple purchases to track, a trader must be able to concentrate and remain on their toes all day long. It is not as simple as purchasing a few stocks and sitting back to watch what happens next. The market can change very quickly and anyone who takes their eye off the ball for even a moment can sustain large losses. Timing is crucial. The trader must know when to pull the trigger on a particular purchase if that trader is to be successful. Expenses for day trading firms can be relatively high as well. Since so many of these purchases are made on borrowed money an unskilled trader may find that they are in a financial hole very quickly. With such high risks, some view these practices as a form of gambling. Rather than hanging on to a variety of stocks over a period of time, a day trader's objective is to buy low and sell high. The phrase day trader has earned something of a spotty reputation, therefore some individuals prefer the name market timer or swing trader.
Some day trading firms attempt to lure in clients with unrealistic promises of fast profits and minimal risks. In most cases, investors should beware. Before turning over hard earned cash, a potential client should check out the track record of any firm. How much money have they made for their clients? How much have they lost? If this information is not available, a client should move on. There are also many websites that offer advice and investing tips to at home traders. This advice should be taken with a grain of salt to say the least. In addition, seminars, books, and courses on how to succeed in this risky area are widely available. The information in these resources may or may not be considered objective, however. A state securities regulator will usually be able to make recommendations and give information on day trading firms. Trading agencies are required to register with the SEC in whatever state they are conducting business in. The SEC should be able to inform the potential client if there have been problems with a particular firm. The North American Securities Administrators Association can provide interested parties with the telephone number of the appropriate state securities regulator. A wise consumer will take steps to locate a reputable firm that can provide counseling on less risky financial management.
One method that is used by day trading firms is that of news playing. This practice involves the quick purchase of stocks that have just revealed some kind of good news or rapidly selling stocks that have just posted bad news. In some cases, this news can be nothing more than unsubstantiated rumors. The skill of the individual trader may hinge on the quality of advice adhered to. The importance of wise and ethical advice is explained in the Bible. "Blessed is the man that walketh not in the counsel of the ungodly, nor standeth in the way of sinners, nor sitteth in the seat of the scornful." (Psalm 1:1)
For anyone who is determined to seek success through day trading firms, there are a few requirements. The first major requirement is the availability of a large amount of money that can be put at risk. Establishing iron clad limits and rules and sticking to those limits and rule is also essential. The odds of success can be very steep, but it is not impossible. There are individuals who have had success with this method of financial management. But anyone who attempts such short term investments should only do so when they fully understand the risks involved.