Day Trading
A trading style in which a trader buys and sells securities within the same trading day, closing all positions before the market closes to avoid overnight risk.
What is Day Trading?
Day trading involves opening and closing positions in stocks, ETFs, or other securities within the same trading session, with the goal of profiting from intraday price movements. Day traders never hold positions overnight, avoiding the risk of adverse price gaps caused by after-hours news. Day trading requires significant capital, real-time data access, low commission costs, and the ability to act on split-second decisions. Under FINRA's Pattern Day Trader (PDT) rule, any US trader who executes four or more day trades within five business days in a margin account is classified as a pattern day trader and must maintain a minimum equity of $25,000. Academic research consistently finds that the majority of retail day traders lose money after accounting for transaction costs and taxes.
Example
A pattern day trader operating during the high-volatility market of early 2024 focuses on large-cap stocks with elevated trading volume and recent news catalysts. Using a direct-access broker with Level 2 quotes showing market maker bids and asks in real time, he opens and closes multiple positions in AMD and Nvidia throughout the session, targeting $0.20–$0.50 price moves per share. At the end of the session all positions are flat, eliminating overnight gap risk.
Source: FINRA — Pattern Day Trader