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  • by Sophie Robinson
  • Apr 04, 2023
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What exactly is day trading? 

Day trading entails opening and closing a trading position in a short period of time. Ideally, a few minutes, hours, or a trading day. In practice, this also means trading over a few days. The idea is to make a small profit of 5-10% of what you invested and then repeat this action several times. 

Although you can begin with as little as a few hundred pounds, your returns will be minimal if you buy and sell individual stocks. This is due to the various fees you will have to pay. These fees typically consist of a flat commission fee paid to the broker and some form of tax, which is usually a percentage of the total value of the trade. 

As a result, many day traders are forced to use leveraged products such as CFDs and Spread Betting. The advantage these provide is lower costs when compared to traditional brokers, as well as increased profits due to leverage, making it worthwhile for you timewise. The main disadvantage is that you can lose a lot of money because of the leverage. Perhaps more than you put in. 

Our top five day trading tips 

We recognize that there are many more tips you may require or believe are more important, but these four are ones we have not seen mentioned before. They will not make you rich or prevent you from losing money, but they will reduce your losses and increase your chances of success. 

1. Invest in lower-risk assets. 

If you are day trading, you are almost certainly using leverage. Typically, your broker will provide this. As a result, you've already taken a significant risk. There is no need to trade something that is at the top of the risk scale, such as cryptocurrency. 

This also applies to Forex trading, which is extremely risky; consider what happened to the EURCHF in 2015 when the Swiss National Bank abruptly removed its peg to the Euro. This resulted in an instant 20% increase in the CHF, wiping out many traders and even brokers. 

Indexes such as the S&P 500 and FTSE100 are one area that is frequently overlooked. Although volatile, these are possibly less dangerous than trading a currency pair. This is because of the potential losses. If a currency pair and an index both moved 20%, the indices' loss would most likely be less than the currency pair's.

Also, no one knows where foreign exchange rates are headed or what the price of cryptocurrency will be. In contrast, indices provide some visibility into what the underlying government and economy are doing. encyclopedia pair. 

2. Stick to your principles 

Admit it, you will lose money when you first start, and it will most likely be uncomfortable. According to anecdotal data, many new traders quit after only 3/4 months. This is usually after they have suffered a significant loss that has scared them away. 

As a result, be prepared to commit to a 12-month period and accept that you will lose money at some point. Discover how to deal with a (significant) loss and why it occurred. You will eventually learn to accept less risk (which does not imply less reward) and to exit positions earlier. Recall that the initial cut is sometimes the lowest, and that a risk-adjusted return is 

3. Create your own risk model 

This may not be clear to people with limited trading expertise, but it is fundamentally equivalent to developing a company strategy. Your risk model should include how much capital you are willing to risk, when you must sell ('get out' - no excuses or compromises), and whether you can afford to trade a specific asset class. 

You should also have a target number in mind for when you will begin to reduce your positions once you have achieved your maximum risk.As a result, either be extremely aware of when they are or trade indices such as the S&P 500 or the Dow Jones Industrial Average, which pay significantly lower dividends than other markets. 

4. Examine the cost. 

You will incur some expense if you use derivatives of any kind, such as CFDs or spread bets. This will include overnight funding expenses (for providing leverage) as well as modifications for the indices you are trading. 

Consider dividends as an example. You are responsible for a dividend if you short an index during a period when it is paying one. That is, the broker will charge you the dividend value. They can quickly grow to be quite significant, wiping out whatever profit you plan to gain. 

Apart from the day trading ideas we've supplied, you should be willing to learn. That means being willing to abandon whatever preconceived notions you may have had when you first began trading. You are unlikely to achieve success right away.

After some time, you will begin to be consistently successful. When you have suffered a single great loss. This will teach you discipline and how to value risk over reward.