How Does Day Trading Work?

Day Trading is the name given to buying and selling stocks and shares (and forex) during a trading day. The trades (or positions) are usually opened and closed within the same trading day, sometimes even in minutes. The aim, as in all stock market trading, is to sell for a higher price than you bought. You have to bear in mind that there will be a spread (the difference between the buy price (the Ask) and the sell price (the Bid). This varies depending on which broker you trade with.

So, for example, if you have a stock that has a 1 cent per point (or Tick) and the share price is quoted as 50 cents, this is called the Mid price and is what you'll see in the morning newspapers. If there is a four point spread, the Ask would be 52 cents and the Bid would be 48 cents. The spread is used as the brokers commission and to pay other fees. So in the example above, if you bought at the Ask of 52, you would have to make up the spread before you break even, so the Bid price would have to reach 53 before you would be in profit.

Spreads vary between brokers and markets. You might find a 4 point spread on NASDAQ but a 10 point spread on S & P, so ideally you need to shop around to see who is giving the best deal for you. There are plenty of brokers on the Internet, and quite a few financial spread betting firms who will gladly and easily open an account for you. Most will let you open a virtual account so that you can paper trade until you get used to it and there is a very good Day Trading Simulator available free on the Internet. But remember this : Day Trading is in reality a form of gambling, so only use what you can afford to lose and get yourself a plan.

If you're interested in the free Day Trading Simulator, take a look at my Day Trading Page.

There's another piece of software that can help with Day Trading on my Day Trading Page.

Reuters - Citigroup Inc is in advanced talks to sell its Smith Barney brokerage unit to Morgan Stanley, a person familiar with the matter said on Friday, in a move that would further dismantle the financial supermarket that has been bailed out by the U.S. government.

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