What Are Day Traders

Day traders have only really started to surface over the last couple of decades, this is one of the many results of the increased merging of the economy and technology.

Essentially, a day trader is a person who works within the stock market by buying and selling shares and making transactions involving other forms of financial instruments – stock options, bonds, foreign currencies, etc.

What separates these traders from other investors is that they complete all their transactions within the "day." So what this really means is simply this, these traders finish all market trades, transactions prior to the stock market closing its doors for the day, for that reason they are given the title of "day traders."

And with these traders it is no different from other investment positions involving the marketplace and the instability of world finances, day trading can involve quite allot of risk for the trader and their investors.

To be successful, day traders need to be well informed about the market, have a clear and effective strategy that they stick to, and the financial resources to weather difficult periods.

Day Traders Can Be Placed Into Two Different Categories

Day traders can be mostly put into two categories: institutional day traders and retail day traders.  The difference between the two mostly comes down to whether the day trader is employed by an institution, or whether he or she is self-employed.

An institutional day trader generally works for a financial institution. A company with large reserves of capital can use that money to make more, and if the company's capital is always fluctuating then day trading can offer a manageable amount of risk over a short period of time.

The advantages of being an institutional day trader comes down to having access. Access to large sums of money, which allow for greater profits, and access to expensive equipment that can help a day trader analyze the market more precisely in order to make the best choice in the quickest amount of time.

An institutional day trader might also have staff working for him or her, which also helps to allow continuous monitoring of the changes in the market throughout the day. Opportunities are unlikely to be missed and mistakes can be more quickly corrected with a team of others.

A retail day trader generally works for him or herself, or at the most with a couple of other traders, like a team. A retail day trader loses a lot of the advantages that come with being an institutional day trader, but at the end of the day, all the profits are theirs.

Short Term Loans Are Regularly Used By Day Traders

Many day traders are able to increase their profits by obtaining short-term loans to get a greater amount of capital. The danger, of course, is that with greater capital being invested, comes greater risk. Losing money that has been borrowed can result in financial ruin for retail day traders if they do not manage their risk appropriately.

Day trading has seen an increase in numbers ever since the early 1990s with the technology boom and the changes that were made to market regulations that allowed for much lower commissions from brokers and a faster turn-around from investments.

Day trading continues to be a busy part of the market, and nowadays many day traders who work for themselves, are able to make a significant amount of money.