Trading

Trading is the buying and selling of securities, such as stocks, bonds, and commodities. Learn the nuances of trading in different markets and strategies to profit from.

Frequently Asked Questions

  • What is day trading?

    Day trading refers to buying and selling or selling short and then buying the same security on the same day. Day traders aim to take advantage of intra-day price fluctuations. Most common markets for day traders are stocks, forex and futures. Day trading is risky and even experienced traders don’t make consistent profits. There are strict regulations and capital requirements for pattern day traders.

  • What is options trading?

    An option is a derivative contract that gives its owner the right to buy or sell securities at an agreed-upon price within a certain time period. Traders buy and sell options based on their expectation of where the price of the underlying security is headed. Options can be used as a hedge and can have potential for big profits. But trading options is risky, in some cases, traders may face unlimited losses.

  • What is margin trading?

    Margin trading means borrowing funds from your broker to trade securities. For example, on a 50-to-1 margin, for every $1 in your account, you are able to trade $50. You need a margin account for that in which your broker requires a minimum balance. If the balance drops below that limit your broker can trigger a margin call which means you either need to deposit more funds or they can sell your holdings.

  • What is after-hours trading?

    The NYSE and Nasdaq are open for trading 9:30 a.m. to 4 p.m., Monday through Friday. However, you could still put in trade orders for stocks between 4 p.m. and 8 p.m. in what is called after-hours trading. It allows traders to respond to news (like earnings) outside of market hours, though lack of liquidity could cause trades to remain unfulfilled. Brokerages may also have restrictions for after hours trading.

  • What is swing trading?

    Swing trading means trying to profit from a security’s price fluctuations over a minimum of one day and a maximum of several weeks. It has a longer view than day trading and a shorter view compared to long-term investing. That means it requires some degree of active management of trades, although less than day trading and more than long term investing.

  • What is scalping in trading?

    Scalping is an ultra-short term trading strategy that takes advantage of small price movements. It aims to profit from a large volume of trades instead of a big gain on each trade. Such trades could occur within minutes as scalpers believe its less risky to make small gains that wait for big price moves. Though disadvantages of scalping include the need for a margin account and high commission cost due to high trade volume.

  • What is paper trading?

    Paper trading essentially means practicing trades without putting down actual money. You could write your trades on a piece of paper and follow how they perform in the markets. You could also do that with a simulator or demo account offered by your broker. While paper trading helps you hone your skills it has limitations. It does not account for factors like emotions, transaction costs and impact of broader markets.

  • What is dark pool trading?

    Dark pools are trading systems that allow participants to place trades without publicizing the size or price of the order to the general market or other participants. They are also called alternative trading systems. Typically used by institutional investors, the benefits of dark pools include ability to trade a large volume of stocks while minimizing information leakage. However, no disclosure of large volumes traded in dark pools means the supply and demand in open markets may not be accurate.

Key Terms

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