There have always been a range of different trading styles, almost as many as there are traders. But it is only relatively recently that the best-known of them have been grouped together under various names.
For the novice, these labels can be daunting: day trading, swing trading and so on. In fact, each represents a reasonably straightforward trading concept, and here we will be looking at those that you are most likely to encounter.
Far and away the most commonly talked about is day trading. Unfortunately, so well-known is it that the expression “day trader” has become dangerously imprecise and applied almost indiscriminately to speculators of all types, to people who trade from home and to private traders in general.
In fact, the original day traders were not lone individuals tapping away on computer keyboards at their kitchen tables, but employees or partners of financial businesses or seasoned full-time speculators.
Such criteria are designed to protect the day trader against what could be catastrophic losses. These losses would be magnified if, like many of their fellows, the day trader is trading “on margin”, in other words with borrowed money.
Margin trading is attractive to day traders because interest is usually only charged on balances carried forward to the next trading session, thus for the true day trader the loan is free. But that would be little consolation were a trade to go seriously wrong during the day in question.
We used the phrase “true day trader” earlier, because some day traders do carry their positions over to the next day if those positions are proving profitable. To purists, this would be a breach of the unofficial day trading rules.
Anyone wanting to know how to become a day trader should be aware that many, perhaps a majority, of such traders still work for banks and other financial institutions, risking other people’s money rather than their own. But a combination of communications technology and regulatory changes has opened up day trading to people in all walks of life.
Trading at both ends of the day
In the latter category, the abolition of minimum stockbroking commissions on Wall Street in 1975 and in London 11 years later brought into being discount brokers, those able to offer competitively-priced services to retail investors.
Less well-known than day trading but inspiring just as much devotion among its practitioners is end-of-day trading. The name is somewhat misleading, as many end-of-day traders actually trade at the start of the day.
But whether trading first thing in the morning or last thing at night, end-of-day traders share the same trading philosophy, which is to avoid the short-term “noise” of the trading day and ignore the short-term second-by-second price movements.