In this introduction to day trading, we will first explain what trading is and then clarify the term day trading. We will also briefly explain how it is done and what tools you need.

Trading is simply another word for buying and selling. As an example, if an investor was to buy cigarettes at a wholesaler and sell them at a profit then they would be a cigarette trader.

On the other hand, if they were to buy stocks in the hope of selling them later at a profit then they would be share trading.

Investors are not limited to trading only in stocks. In today’s market traders can often trade in commodities, such as gold or crude oil, currencies and even stock market indices, such as the FTSE 100.

There are various types of traders, of which the day trader is only one. Swing traders and long term traders are other examples.

A swing trader would, for example, buy an asset such as a share, commodity or currency when they believed the price had reached a temporary low. They would then aim to sell it again a few days or weeks later when the market had reached the top of an upswing.

A long term trader usually operates over a much longer time frame, often covering anything from a few months to years.

By contrast a day trader attempts to complete all trades during the same trading day.

By doing this a trader can avoid paying overnight financing fees and can limit their exposure to the market movements whilst they are away from their trading desks.

To be able to do this a day trader needs one very important thing, among others, and that is live prices.

For a day trader, it is useless to only see the historic end-of-day prices. As a result, many day traders ensure that they have access to a live price feed. In fact many spread betting companies like GFT offer free live financial spread betting prices to their account holders.

It can be difficult to interpret long rows of figures and make sensible trading decisions from what you see.

Typically spread betting charts can make it easier to see at a glance where the price comes from and where it might be heading to. Good charting software is therefore indispensable for the day trader.

Many day traders use hourly charts, but there are those who prefer to see market movements over shorter timescales by using 10, 5 and even 1 minute intervals.

To help magnify their potential profits, many day traders make use of a leveraged form of investment such as financial spread betting. While this sounds great, it is important to remember that any losses will also be multiplied and you can lose more than your initial investment.

Every time you trade, there is a cost involved. Typically this will be in the form of broker’s fees, commissions or taxes. Even with a tax free* form of investment like spread betting you still pay commission in the form of the difference between the bid price and the ask price.

Whilst trading over relatively short timescales it is important to note that the trading costs can add up, especially if you make a large number of quick trades.

Spread betting is a leveraged investment option, it involves a high level of risk to your funds and can result in losses that are greater than your initial investment. Please ensure that spread betting matches your trading objectives as it might not be suitable for all investors. Ensure that you only spread bet with capital you can afford to lose. Make sure you fully appreciate the risks involved and request independent advice where you feel it is necessary.