Day trading has become an incredibly popular way to make money in the past few years. While the number of traders has been rising, the trend became more popular during the pandemic.
At the time, most people in the US were flush with cash, thanks to the stimulus packages worth trillions of dollars. Interest rates were also incredibly low and all assets like stocks and cryptocurrencies were doing well.
In this article, we will explain what day trading stock is and some of the interesting facts about trading that you should know.
Table of Contents
How does stock trading work?
Day trading is the process of buying and selling stocks with the goal of generating a profit. Unlike investing, day traders usually have an extremely short-term horizon.
This means that they are typically not interested in a company’s fundamentals. Instead, they focus on chart patterns in a bid to identify entry and exit prices.
For example, if you expect a stock to rise, you execute a buy order. On the other hand, if you believe that it will drop, you execute a short order.
Types of stock traders
There are primarily three types of stock traders. First, there are retail traders. This term refers to individuals who trade with their own cash. Think of people who trade using their Robinhood and WeBull accounts.
Second, there are proprietary traders. Commonly known as prop traders, these are people who trade using a company’s cash. At Real Trading, we provide people with funds to trade and then we split the profit.
Related » Retail Trading vs Proprietary Trading Accounts: Pros & Cons
Finally, there are institutional traders, who are people who trade for large companies like hedge funds and investment banks.
Styles
Beneath this, there are many types of stock traders. For example, there are scalpers, who focus on opening and closing trades within minutes. There are copy traders who simply copy or mirror trades from experienced traders. There are also swing traders, algorithmic traders, and grid traders.
Knowledge helps you minimize risk and take advantage of opportunities, so learning about the stock market and types of investments proves useful for both beginners and more experienced traders.
Interesting information about stock trading
1. SOES Bandits Trade Profitably NASDAQ once limited day trading to 1000 shares before the rules changed in 1996, but the exchange’s Small Order Execution System still allowed so-called SOES bandits to make profits with less information and fewer trades than investors have today.
2. You don’t need a lot of money to trade. An important thing about day trading is that the industry has been democratized. Unlike in the past, you don’t need a lot of money to start your stock trading career. Indeed, many people start trading with as little as $500. Companies like Robinhood don’t have a minimum balance.
Another way to trade when you don’t have a lot of money is to use leverage. Leverage is the idea of using borrowed money to trade assets. As such, if you have $200, you can use 30:1 leverage and trade as if you have $6,000.
Another way is to join a prop trading firm like us. The firm will give you thousands of dollars to trade with if you make a small deposit.
3. 16-year-old Beats Financial Experts Actor Rachel Fox, who is only 16-years-old, made big profits from investing in stocks. Fox beat the S&P 500’s 13 percent return by earning a 30.4-percent profit in 2012, and she had time to teach people online about investing while acting and going to school.
Historically, we have seen many young retail traders beat well-educated and extremely experienced professionals. A good example of this is what happened with meme stocks during the Wall Street Bets frenzy in 2021. At the time, ordinary day traders managed to outperform large companies like hedge funds.
Related » When to Start Your Trading Career?
4. NASDAQ Information NASDAQ is short for the National Association of Securities Dealers Automated Quotation, and it was the first exchange to operate electronically when it was created in 1971.
Today, the index is home to some of the biggest companies in the world like Microsoft, Apple, and Adobe. It is known for being the listing venue for technology companies.
Still, for traders, the listing venue does not matter since all these stocks are provided in all brokers.
5. Dow Jones Details The Dow Jones Industrial Average is named for Dow Jones & Co, which was founded by two journalists: Charles Dow and Edward Jones. The company uses 30 American companies to track stock performance and has changed the companies it uses 48 times in 117 years.
6. Top Stock Exchanges The three largest stock exchanges in the world are the New York Stock Exchange, NASDAQ and BATS Global Markets. U.S. stock exchanges trade more than $250 billion daily, and electronic orders take only 200 microseconds before they are filled or recognized.
In stock trading, orders are usually filled by market-makers like Virtu Finance and Citadel Securities. In other words, when you place an order, the broker routes it through these companies in order to give you the lowest price. This process is known as payment for order flow.
7. Why Halloween Is Important to Investors Nobody knows exactly why, but the Halloween effect describes the fact that the stock market does better between Halloween and May Day than it does the rest of the year. Stocks often perform poorly during the spring and summer months.
This situation is known as seasonality. For example, there is a concept known as ‘sell in May and go away’. It implies that stocks tend to underperform during summer. Also, there is a situation known as the Santa rally. It means that stocks tend do well ahead of Christmas.
Summary
All investments carry risks and possible rewards, and investors can choose from stocks, ETFs, bonds, mutual funds, real estate and physical commodities like gold and silver.
Understand the risks before trading stocks or investing, and choose the right method for your ability to handle risk. However, you can enjoy unlimited bragging rights when you impress your friends with surprising facts about investing.
