FAQ about Day Trading

Q. What is day trading?

A. Day trading is the high-risk/high-return buying and selling of stocks. You connect through the Internet through a brokerage firm to a network that exchanges stocks between sellers and buyers.

Q. How high are the risks?

A. There is a relationship between reward and risk – as your reward increases, so does your risk. When you are trading, you are competing against other day traders as well as institutional traders, and you are all after the same thing. It is important that you minimize your risk as much as possible in order to make a profit. An acceptable ratio for reward to risk should be about 3 to 1. In other words, the trade potential is three times the amount that you might lose.

Q. Can I start day trading part time?

A. Yes, you certainly can. You control all the different facets of your online day trading. However it’s recommended that you take a training course before you begin.

Q. How much do I need to start?

A. In most cases, a minimum of $2,000 is needed to open a trading account. However, most brokerage firms will limit the number of trades you can complete within a certain time period. If you should hold onto the stock overnight, it will not count towards this number. Usually, $25,000 gets you unlimited trades.

Q. What is paper trading?

A. Paper trading is a learning tool that is very important to your skill development. Before you begin online stock trading with real money, you track what you would believe to be good trades on a piece of paper. You can evaluate how you performed and if you were successful – that means if you made money. Most brokerage firms offer an electronic form of paper trading in real time. You can develop the skills you need before you make your first deposit. The best part is that most of these types of services are free!

Q. What is swing trading?

A. Swing trading is when you buy a stock and you hold onto it for a day or two. One of the reasons why it is so popular is because this type of trade does not go against the daily limits for those with lower account balances.

Q. How much does it cost?

A. Besides your initial investment, you will pay commissions and brokerage fees for each trade. These fees can vary, depending on the brokerage firm you use. Make sure you understand all the fees associated with your account before you begin.

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Friday, July 23rd, 2010 Day Trading

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