day trader

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Day Trader

An investor who makes many trades throughout a trading day, buying and selling securities in order to profit from short-term changes in prices. For example, a day trader may buy Stock A at $15 per share because he/she believes it will be $25 a few minutes or hours later. The activities in which day traders engage are high risk because there is no guarantee that the price will move in the desired direction. However, day traders provide a great deal of liquidity to the market.

day trader

A speculator who buys and sells securities on the basis of small short-term price movements. Day traders are thought to add a measure of liquidity to the market.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Day trader.

When you continuously buy and sell investments within a very short time, perhaps a few minutes or hours, and rarely hold them overnight, you're considered a day trader.

The strategy is to take advantage of rapid price changes to make money quickly.

The risk is that as a day trader you can lose substantial amounts of money since no one can predict how or when prices will change. That risk is compounded by the fact that technology does not always keep pace with investors' orders, so if you authorize a sell at one price, the price it's actually executed at may be higher or lower, wiping out potential profit.

In addition, you pay transaction costs on each buy and sell order. Your gains must be large enough to offset those costs if you're going to come out ahead.

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