What is day trading and what does it do?
Day trading is a style that is often used to trade short-term price movements in an underlying market. People who favor day trading will open and close multiple positions in a single trading session, usually in reaction to daily news or events affecting the markets.
Day traders often prefer higher market volatility because it means a market can see more price action in a shorter time frame, providing better opportunities for gains. Generally speaking, markets are most volatile during opening and closing hours.
Day traders don’t leave their positions open overnight, so they don’t pay overnight funding fees. They should, however, follow the markets more closely and take steps to manage their risk exposure in case the market moves against them.
As with swing trading, you can use CFDs to practice day trading. These derivatives offer day traders the ability to take advantage of bull and bear markets, which can help you maximize your exposure to opportunities in a single trading session.
You can day trade any market, but the most common are Forex, stocks, and indices. Forex is particularly popular due to the wide variety of currency pairs and its high intrinsic liquidity, making it easy to open and close positions quickly.
When you are day trading Forex, you will likely have to pay several spreads throughout the day. For this reason, it is important to be aware of pips. In Forex trading, a pip movement represents a one-digit change at the fourth decimal place. So, if the quote of a Forex pair increases from 1.2500 to 1.2501, there has been a pip movement. Forex pips are used to calculate the buy-sell spread for a specific pair and reflect profits and losses.
Learn more about day trading strategies