Day Trading Explained: What It Is & How It Works

Day trading means opening and closing trades within the same day, so no positions are held overnight. Day traders aim to profit from intraday price moves in stocks, futures, forex or crypto.

Day trading vs other styles

Style	Typical holding time	Trades	Main considerations
Scalping	Seconds to minutes	Many per day	Spreads and commissions, execution speed, screen time
Day trading	Minutes to hours, closed by the end of the day	A few per day	No overnight risk, but needs time during market hours
Swing trading	Days to weeks	A few per week or month	Overnight and weekend gaps, financing costs on leveraged positions
Position trading	Weeks to months or longer	A few per year	Larger stops, patience, trend and fundamentals

Style

Typical holding time

Trades

Main considerations

Scalping

Seconds to minutes

Many per day

Spreads and commissions, execution speed, screen time

Day trading

Minutes to hours, closed by the end of the day

A few per day

No overnight risk, but needs time during market hours

Swing trading

Days to weeks

A few per week or month

Overnight and weekend gaps, financing costs on leveraged positions

Position trading

Weeks to months or longer

A few per year

Larger stops, patience, trend and fundamentals

How day trading works

Day traders usually focus on liquid markets with tight spreads and enough movement during the day. Many concentrate on the most active hours: the US stock market open, or the London and New York session overlap in forex. See stock market hours and forex sessions.

Common tools include intraday charts (1 to 15 minutes), support and resistance levels, indicators such as VWAP, an economic calendar for scheduled news, and pre-defined stop losses.

Costs and realities

Costs add up. Spreads and commissions on many trades can take a large share of profits.
Time: it requires being at the screen during market hours.
Most day traders lose money, according to several academic studies of retail trading accounts, and retail CFD brokers in the EU and UK are required to disclose the percentage of their clients who lose money.

The pattern day trader rule (US)

In the US, FINRA rules have treated anyone who makes four or more day trades within five business days in a margin account as a pattern day trader, required to keep at least $25,000 of equity in the account. FINRA has worked on changes to these rules, so check your broker’s current requirements. The rule doesn’t apply to cash accounts in the same way, or to forex and futures accounts.

Practise first

TradingView’s paper trading and Bar Replay let you practise without real money. Size every trade with the position size calculator, and track results with the win rate calculator.

Educational explanation only. ChartWatch is independent and doesn’t give trading or investment advice. Trading carries a risk of loss.

FAQ

What is day trading?

Buying and selling within the same day so that no positions are held overnight, aiming to profit from intraday price moves.

How much money do you need to day trade?

In the US, pattern day trader rules have required $25,000 in a margin account for frequent day trading of stocks. Other markets and countries have different rules; check your broker's current requirements.

Is day trading profitable?

Some traders profit, but studies of retail accounts consistently find that most day traders lose money, especially after costs.

What is the difference between day trading and swing trading?

Day traders close all positions within the day; swing traders hold for days to weeks and accept overnight risk.

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