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 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.
- Browse Related Terms: capital gain or loss, Contingency order, Day trader, Floor trader, home equity, Limit order, Limit price, Markdown, markup, Stop price, Stop-limit order, Tailgating, Trader