»● Day Trading Terms

Bid & Ask

"Bid" and "Ask" are the names given to the prices submitted by buyers and sellers in the market respectively. Since in the trading of every financial instrument, there are people trying to buy as well as sell that instrument at any given point in time, there must exist two prices instead of one; the price that buyers are willing to pay (Bid) and the price that sellers are willing to accept (Ask). This is as true for stocks as it is for currencies. The "Best Bid" for a stock (or any other financial instrument) is the best price (highest price) that someone is willing to pay for that stock at a particular point in time. Conversely, the "Best Ask" is the lowest price (best price) that a seller is willing to accept for a stock. A Bid is made up of an actual Buy Limit Order that has been placed in the market. An Ask is made up of an open Sell Limit Order. When day trading, traders must know exactly what Bid and Ask mean and how to use them.

Currency Trading

Currency trading, also know as "forex trading," has experienced phenomenal growth in the late nineties as more and more day traders have discovered the many advantages that day trading currencies has over trading stocks. Currency trading involves the exchange of one currency for another; for example, US Dollars for Euros. Currencies trade in pairs and a trader buys the currency that he thinks will appreciate in value relative to the other. When looking at a currency trading software platform, the similarities with a stock trading system are striking. Consequently, a stock day trader could easily learn how to day trader currencies. Since there are only a few major currencies to trade (versus tens of thousands of stocks), it is a lot easier for a beginning trader to master forex trading. The ability to trade currencies 24-hours a day, huge leverage, and difficulty to manipulate the market, are just some of the many advantages that are rapidly making currencies the day trading vehicle of choice for the 21st century.

Day Trading

Day trading is the buying and selling of a financial instrument (stock, currency, future, option, etc., etc.) on a daily basis. True day trading involves the opening and closing of a position on the same business day. For example, a day trader can buy a stock at 10:00 AM Eastern Time (half an hour after the United States stock market opens) and then sell it an hour later. The number of transactions that a day trader executes during a single trading day depends greatly on the trading style or system that the trader is using as well as the behavior of the market on that particular day (if the market frequently moves up and down on a consistent basis, this will generate more transactions or trades). Although stock day trading is still the most popular form of day trading in the world, restrictive regulations during the late nineties has caused many traders to flock to other markets like the forex (foreign exchange) market. This is a reason why many traders are now day trading currencies rather than stocks.

Day Trading Computer

A day trading computer is a computer system that will be predominantly used by a day trader to trade. A trading computer is a day trader's gateway to the market. Consequently, a day trader must make sure that his trading computer system is properly equipped. With the constant drop in computer prices and rapid advancements in technology, a day trader could acquire a great trading computer for under $2,000. The trading computer must have plenty of random access memory (512 MB or higher) and a powerful microprocessor (Pentium 4 or similar). It should also include a video card that allows multiple monitors to be connected to the same computer. This will give the day trader greater flexibility in arranging his trading screen by using multiple charts, order entry sections, account information, etc., etc.. The trading software will run on the trading computer and will allow the trader to trade stocks, currencies, futures, or any other financial instrument of his choosing. It is preferred that the day trader also use a high speed Internet connection like DSL (provided by the phone company) or Cable Modem (provided by the cable company). The day trading computer system should be completed with the appropriate antivirus software and firewall as well as a power back up system (UPS) for power outages.

Day Trading Demo

A day trading demo or simulator is a computer program that allows a potential trader to practice trading without risking any capital. A day trading simulator should be as realistic as possible, allowing a trader-in-raining to practice in actual market conditions. There are many trading demos in existence today, allowing traders to practice trading stocks, futures (like the e-mini's), or currencies. Top-of-the-line stock day trading simulation platforms (with direct access capabilities) can cost about $300 a month to use. In the late nineties, advancements in Internet technology have opened the currency trading (forex) market to retail investors, bringing a rush of free or low-cost forex day trading demo platforms to the market that are extremely lifelike.

Day Trading Software

A day trader uses a day trading software to execute his buy or sell transactions in the market that he is trading (stock, currency, futures market, etc.). The trading software is an integral part of the trader's computer system. The day trading software is usually Windows-based or JAVA-based (there are not many trading software platforms written for Macintosh machines - sorry Apple fans!). After installed, Windows-based trading software platform run on the trader's machine and receive the necessary market data over the Internet. A good Windows-based software for trading is usually more robust than the typical Java-based software and crashes a lot less frequently. Quality stock day trading software can cost between $300 and $600 a month to use. Most currency day trading software platforms can be accessed for free.