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10 Important Things You Need to Know Before You Try Day Trading Stocks

All you should need to know about day trading stocks

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Everybody's heard of stocks like AMC, Gamestop and Robinhood these days, but what do you know about day trading stocks like this? Day trading has myriad benefits for self-employed day traders who understand how to combine extensive financial market knowledge with high-end trading technologies.

To help you stay ahead of the curve, we've compiled a list of the most important things to know before you get into day trading.

Technology Enhancements

Trading technologies have enhanced significantly throughout the years. Institutional traders still dominate the high-frequency trading business. They utilize low-latency internet connections and servers located close to the stock exchanges to gain advantages. But retail traders also have access to proprietary trading systems these days.

Related: 5 Ways Technology Is Changing Ecommerce

The times where investors had to call their bank by phone to place an order to buy or sell stocks are long gone. Today, all trading platforms have extended capabilities for day traders. Real-time prices, charts, and level 2 data are accessible at low costs, providing day traders the environment they need to ensure fast trade executions.

Automated Trading

Long-term investors split their risk by diversifying their investments. Day traders who execute trades manually face challenging times diversifying their short-term exposure in the market since even seconds can make a difference in profitability.

Automated trading systems can solve this issue quickly. Using automated trading systems does not only provide investors a long-term investing advantage. It also ensures high-qualitative trading executions for day traders.

There is always a risk inherent in trading and investing, but high-end trading technologies make traders' life easier and allow them to focus on other things instead of looking at the trading screen all day long.


Day traders strive to make money day trading the markets by leveraging capital and placing multiple buy and sell orders per day. However, it requires proper education to achieve the goals and to stand up to the competition.

Related: Learning Automated Trading Can Give You a Major Investing Advantage

Free educational resources on day trading enable investors to learn all aspects of day trading at no cost. The time is well invested even if investors conclude that day trading may not be the right approach.

Pattern Day Trading rule

An often overseen hurdle for aspiring day traders is the pattern day trading rule. Investors executing 4 or more day trades within 5 business days are considered a pattern day trader if they use a margin account. The Financial Industry Regulatory Authority defined a rule for investors that fall into this category. It requires a maintained minimum equity level of $25,000 to day trade as a pattern day trader.

Zero Commission Trading

When Robinhood introduced commission-free trading of U.S. listed stocks in 2014, competitors did not expect this business model to be the future of online trading.

Things changed in late 2019 when Charles Schwab, TD Ameritrade and Interactive Brokers announced they would eliminate all commission fees for trading U.S. listed securities such as stocks, options and exchange-traded funds. Today, commission-free trading offers the freedom of trading frequently at no cost with most online brokers in the U.S.

Trading Times

The New York Stock Exchange (NYSE) and National Association of Securities Dealers Automated Quotations (Nasdaq) are open for trading during:

  • pre-market hours from 4:00 am EST to 9:30 am,
  • regular market hours from 9:30 am to 4:00 pm EST, and
  • after-market hours from 4:00 pm to 8:00 pm Eastern Time Zone.

Day traders make the most money in a volatile market when stocks skyrocket within minutes, while sideway markets don't offer that many opportunities. The most volatile times with the highest liquidity are the first and last 30 minutes during the regular trading hours.

Direct Market Access Brokers

While all brokerages allow customers to trade during the regular market hours, some brokers deny or limit access to trading during the extended market hours.

Day traders who want to trade within the extended market hours need to consider holding a brokerage account with a specialized day trading broker. They allow traders to trade at any time, borrow securities for short-selling, and offer trading platforms with hot-key functionalities for more efficient trading.

Order Types

Investors tend to buy stock of a company without focusing on the exact trade execution price. In the long-term, it typically makes no difference if a trade gets executed for $100.20 per share or at $100.30 per share. However, it can make a fundamental difference for the profitability of a day trader if thousands of shares are traded at once. The awareness of the difference between market orders and limit orders is crucial.

A market order gets executed immediately at the best possible price once the exchange receives the order. Therefore the trade execution speed has the highest priority.

In contrast, a limit order aligns the highest priority to the trade execution price. The limit defines the exact price a trader is willing to pay or receive for the number of shares transmitted with the order. For example, if a buy limit order of 1,000 shares is set to $100.20 per share, the order will only be filled if someone else is willing to sell his position for $100.20 or less. If no one sells shares for that price, the order remains open.

Order Routing

Zero-commission brokers route client orders directly to 3rd-party venues instead of routing them to the stock exchange. The trader does not have any control of the target exchange. Venues try to match the buy and sell orders from various clients for the best price possible. Unfortunately, that is not every time the fastest way to execute orders.

Related: Don't Let Emotion Undermine Your Investment Decisions

Direct market access brokers allow clients to control the order routing by choosing specific stock exchanges or an Electronic Communication Network to improve order execution speed and quality. However, the downside of using a direct market access broker is that commission-free trading is not possible using such a broker.

Success Rate

Investors feel comfortable with above-average returns relative to the S&P 500 by holding mutual funds or exchange-traded funds in the portfolio. For example, the S&P 500 gained more than 320% between 2011 and 2021, while some sector ETFs like the iShares PHLX Semiconductor ETF gained nearly 1,000%.

Holding such assets in the portfolio is beneficial, but day traders aim for even higher returns. Unfortunately, some studies show that most day traders lose money. That's why it is crucial for success to learn how to day trade and invest only a small portion of capital in speculative trading activities.

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