10 Important Things You Should Know Before You Try Day Trading Stocks

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Do you want to get started in day trading? Here’s how.

Everyone has heard of stocks like AMC, Gamestop, and Robinhood these days, but what do you know about day trading stocks like this? Day trading has many advantages for independent day traders who know how to combine vast financial market knowledge of high-end trading technologies.

To help you stay ahead of the curve, we’ve compiled a list of the most important things to know before you start day trading.

Technological improvements

Trading technologies have improved dramatically over the years. Institutional traders still dominate high frequency trading. They use low latency internet connections and servers located near exchanges to get benefits. But retail traders also have access to proprietary trading systems these days.

Related: 5 ways technology is changing e-commerce

The days when investors had to call their bank by phone to place a buy or sell order actions are long gone. Today, all trading platforms have extensive capabilities for day traders. Real-time stock prices, charts and level 2 data are accessible at low cost, giving day traders the environment they need to ensure fast trade executions.

Automated trading

Long-term investors divide their risk by diversifying their investments. Day traders who execute trades manually face difficult times in diversifying their short term exposure in the market, as even a few seconds can make a difference in terms of profitability.

Automated trading systems can solve this problem quickly. Using automated trading systems not only provides investors with a long-term investment advantage. It also guarantees high quality trading executions for day traders.

There is always some risk inherent in trading and investing, but high-end trading technologies make life easier for traders and allow them to focus on other things instead of staring at the trading screen all the time. daytime.


Day traders strive to make money by trading the markets, raising capital and placing multiple buy and sell orders per day. However, it takes a good education to achieve goals and stand up to the competition.

Related: Learning Automated Trading Can Give You A Major Investment Advantage

To free educational resources on day trading allow investors to learn all aspects of day trading for free. Time is well invested even if investors conclude that day trading may not be the right approach to investing.

Model day trading rule

An often overlooked hurdle for aspiring day traders is the model day trading rule. Investors who execute trades of 4 or more days within 5 business days are considered day traders if they use a margin account. The Financial Sector Regulatory Authority has defined a rule for investors who fall into this category. It requires a minimum maintained fairness level of $ 25,000 for daily trading as a model day trader.

Negotiation without commission

When Robinhood introduced commission-free trading in US listed stocks in 2014, competitors did not expect this business model to be the future of online trading.

Things changed at the end of 2019 when Charles Schwab, TD Ameritrade and Interactive Brokers announced that they would eliminate all commission fees for trading US-listed securities such as stocks, options and traded funds. in stock exchange. Today, commission-free trading offers the freedom to trade frequently and for free with most online brokers in the United States.

Trading time

The New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (Nasdaq) are open for trading during:

  • pre-market hours from 4:00 a.m. EST to 9:30 a.m.,

  • regular market hours from 9:30 a.m. to 4 p.m. EST, and

  • hours after market 4:00 p.m. to 8:00 p.m. Eastern time zone.

Day traders make the most money in a volatile market when stocks soar in a matter of minutes, while sideways markets don’t offer as many opportunities. The most volatile periods with the highest liquidity are the first and last 30 minutes during normal trading hours.

Direct Market Access Brokers

While all brokerage firms allow clients to trade during normal market hours, some brokers deny or restrict access to trading during extended market hours.

Day traders who wish to trade during extended market hours should consider holding a brokerage account with a specialist day trading broker. They allow traders to trade at any time, borrow securities to sell them short, and offer trading platforms with hotkey functionality for more efficient trading.

Order types

Investors tend to buy shares of a company without focusing on the exact execution price of the transaction. In the long run, it usually doesn’t make a difference whether a trade is executed for $ 100.20 per share or at $ 100.30 per share. However, it can make a fundamental difference to a day trader’s profitability if thousands of stocks are traded at a time. Understanding the difference between market orders and limit orders is crucial.

A market order is executed immediately at the best possible price once the exchange receives the order. Therefore, the speed of transaction execution has the highest priority.

In contrast, a limit order aligns the highest priority with the trade execution price. The limit defines the exact price that a trader is willing to pay or receive for the number of shares transmitted with the order. For example, if a limit order to buy 1,000 shares is set at $ 100.20 per share, the order will only be executed if someone else is willing to sell their position for $ 100.20 or less. If no one sells shares at that price, the order remains open.

Order routing

Commission-free brokers route client orders directly to third-party sites instead of routing them to the exchange. The trader has no control over the target exchange. The sites try to match the buy and sell orders of various customers at the best possible price. Unfortunately, this is not always the fastest way to execute commands.

Related: Don’t let emotion get in the way of your investment decisions

Direct Market Access Brokers allow clients to control the flow of orders by choosing specific exchanges or an electronic communication network to improve the speed and quality of order execution. However, the downside of using a direct market access broker is that commission-free trading is not possible with such a broker.

Success rate

Investors feel comfortable with above-average returns relative to the S&P 500 by holding mutual funds or exchange-traded funds in the portfolio. For example, the S&P 500 gained over 320% between 2011 and 2021, while some sector ETFs like the iShares PHLX Semiconductor ETF gained nearly 1,000%.

Holding such assets in the portfolio is beneficial, but day traders aim for even higher returns. Unfortunately, some studies show that most day traders lose money. This is why it is crucial for success to learn to trade on a day-to-day basis and to invest only a small part of the capital in speculative trading activities.

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