Day trading overview: pros, cons, best assets, best time to trade

Day trading (or intraday trading) is a trading strategy that involves opening and closing positions on the same day. Day traders typically aim for positions that last several minutes to a few hours, taking advantage of small price movements during the trading day, allowing them to execute a large number of trades in a single day. 

Day trading is a type of trading in which you buy and sell instruments while only holding the position for one session. You close positions opened during the day prior to the market's close. The goal is to make a small profit on each position and compound the gains over time.

Previously, trading required a significant amount of capital. Nowadays, competition is fierce, and every broker strives to provide the lowest fees with the smallest minimum deposits. 

With the rise of online brokers that provide free stock trading, day trading in this market is becoming more popular.

To optimise this system of repeated buying and selling, day traders use leverage, which allows them to maximise their gains quickly with a small initial investment. 

Leverage and derivative products allow you to borrow money from your broker to increase your exposure and multiply your profits.

Given the volume of transactions, investors must be cautious about fees and need strong day trading strategies and tips to profit in the long term. 

Day traders frequently seek to profit from both upward and downward fluctuations. They may sell a stock short if they believe the price will fall in the short term, or buy the instrument if they believe the price will rise. They may repeat their operations several times per day.

Although this is comprehensively dissected on our day trading tips and strategies page, to limit losses, you must define stop-loss orders. Define how you will manage the risk in your trades. 

The strategy entails establishing two stop losses:

1. Place a real stop-loss at a price level that aligns with your risk tolerance. This is essentially the maximum amount of money you can lose per trade. 
2. When your entry criteria face significant threats, create a mental stop-loss plan. This means that if the trade takes an unexpected turn, you will immediately close your position. 

Regardless of your choice, the exit criteria need to be sufficiently specific for testing and replication. Furthermore, it is critical to establish a maximum daily loss that you can bear, both financially and psychologically. Furthermore, always follow your trading strategy and boundaries.

So, once you've established how you enter trades and where you place your stop loss, you can determine whether the potential strategy fits within your risk tolerance. 

If the strategy puts you at too much risk, you must modify it in some way to mitigate the risk. And if the strategy is within your risk tolerance, testing begins.

The amount of capital you have is not the most important factor in trading, particularly day trading. 

The most important thing is to practice good money management and increase your trading skills. You only need a few hundred euros to start day trading.

Which markets are suitable for day trading? To be able to day trade, go to markets that meet the following two conditions: the market must be volatile and have significant liquidity.

You will be able to successfully day trade if you visit a market that meets these two conditions. You must be able to capitalise on volatility when placing stock market orders to buy or sell. 

Furthermore, you must be able to sell your assets, such as stocks, at any time. In a non-liquid market, you will be unable to sell your shares when you want.

Several markets meet these two criteria, including commodities, indices, stocks, cryptocurrencies, derivatives, and forex.

1. Forex

Forex is suitable for traders who want to trade during the day or at night, depending on their availability. 

With a daily trading volume of approximately $6.6 trillion, Forex is a highly liquid market. Major currency pairs are ideal for day trading. On these instruments, order execution is usually instant.

Forex provides some variety in terms of currency pairs to trade. Day traders can choose from approximately twenty fairly liquid currency pairs. This market is also the most accessible to new traders.

2. Indices

Indices are baskets of assets. Stocks can represent a sector or a group of companies.

However, it is important to note that indices can be extremely volatile at times, particularly during geopolitical events that shake the markets.

Indices are financial instruments that are difficult for a major market participant to manipulate. An index's value varies in response to the price fluctuations of the instruments it comprises, providing stability.

Furthermore, they provide some diversity. Trading indices allows you to diversify across multiple assets rather than focusing on a single stock.

3. Stocks

For traders looking for quick movements, day trading on stocks to buy is ideal. When there is sufficient liquidity, these instruments become quite dynamic.

However there is a strong disadvantage to this style of day trading, which is discussed in-depth in our tips and strategies page. 

4. Leveraged derivative products

To achieve success with day trading, it is necessary to use derivative products such as CFDs (contracts for difference), options (call and put options), or futures contracts that use leverage to magnify price movements.

Because of their low trading costs, futures markets are ideal for day trading. The most-coveted futures are extremely liquid.

The E-mini S&P 500 is one of the most sought-after futures for day traders. Electronic trading ensures quick execution for all contracts.

Other futures indices available for trading include the E-mini Nasdaq, Russell, and Dow. Other markets, such as commodity futures, provide the volume and volatility required to generate intraday gains.

However, this trading strategy is risky if the market moves against you. To better preserve your trading capital, you should practice good risk and money management, particularly with stop-loss orders.

5. Cryptocurrencies

Day trading in cryptocurrencies is thriving. Cryptocurrencies' high volatility and growing trading volume attract traders seeking quick profits.

Cryptocurrency day traders are less interested in buying cryptocurrencies than in profiting from their fluctuations. As a result, they can rely on the cryptocurrency CFDs provided by most Forex brokers.

Common day trading questions at a glance