Day trading means buying and selling a stock in the same day, and
taking advantage of small differences in the share price that occur
during the normal course of the market period. Some stocks may
fluctuate by several percent over a matter of hours, which presents
this opportunity for arbitrage by the day trader. To be considered a
day trader, you must have investment capital of $25,000. The New York
Stock Exchange and the Nasdaq have special rules pertaining to day
traders.
The markets will determine if you are a "pattern day trader"
if you have this minimum amount, and you will be subject to special
restrictions. You are a pattern day trader if you buy and sell a stock
in the same day in at least four out of five days, and if day trades
make up six percent or more of your trading volume. If you are engaged
in day trading and do not have $25,000 in your margin account, the SEC
may freeze your account for a period of 90 days.
The rule may seem overly restrictive, but in reality, day trading with
less than $25,000 would be overly risky and would probably yield very
little profit. Because you are not taking long positions, the increases
in share price will be comparatively small, and in order to reap any
significant reward, you must buy several hundreds or thousands of
shares to make the trade worthwhile. For example, suppose in the
morning, you buy 500 shares of a stock trading at $15, and sell it at
$15.05 before the close of trading that same day. You've made a $25
profit for your trouble--but you still have to factor in the trading
commissions, which can eat up almost the entire profit on such a trade.
However, it is possible to start trading stocks with any amount of
money. An alternate strategy used by many, and that is particularly
useful for those who do not have the $25,000 minimum, is intra-day
trading. Instead of closing out all your accounts at the end of the
day, an intra-day trader considers share price swings that may occur
over a period of several days or weeks. These swings may be much
greater than what occurs over the course of a single day, and profits
can be greater on each trade.
Home
Reader Comments 
Related Links 
Recent Posts