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The world of day trading

business Updated: Apr 28, 2008 00:54 IST
Arnav Pandya
Arnav Pandya
Hindustan Times
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The stock market presents a glamorous façade to many people. They look and dream about making thousands of rupees in a single minute due to the fluctuation of prices in the market. However, a lot of risk is also involved in the entire process and many people could end up losing their money in the quest to make some quick money.

Professionals who undertake this kind of activity are known as day traders. They sit before trading terminals and quickly execute transactions based upon their strategies. The important thing for them is that they do not keep an open position beyond a certain time and this can often be just a minute or a couple of minutes. They take a position and then quickly close it out and this is done irrespective of whether there is a gain or loss in the entire transaction.

Swings

For this category of people even a small change in the price is a big thing because their entire success depends upon these kinds of small changes. A normal investor might not even look at a 25 paise change in the share price and for them it is easier to round off the amount but for a day trader this constitutes the core of their earning or their loss as the case may be. This is often the reason why the position of the day trader is not kept open for a very long time because a sudden change in the price can leave them with a large impact.

Possible losses

A day trader unlike a long-term investor will not have the luxury of sitting back and watching the show for a long period of time. If there is a correction in the share price then a long-term investor can postpone his decision of selling the shares for some period of time and wait for the conditions to improve. This kind of luxury is not possible for the day trader who will take a hit with falling prices. This means that the loss cannot be postponed and at the same time there cannot be a sudden change in the stance because the trader has to follow certain points.

Wipe-out

This can also result in a situation where the gains for some period are wiped out by the losses on other days. Also since the margin is very small if there are changes like the rate of the securities transaction tax or the nature of the treatment of the STT then this can completely overturn the entire nature of the trading making it unviable. This is the reason why survival is a daily game that has to be played out by a day trader.

The author is a certified financial planner.

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