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Day Trading Basics

The stock market can be a lucrative opportunity for those who know how to manage their financial tools and assets. For others, it could be their worst nightmare. Stock market day trading can also be a tricky and unfamiliar environment for those who are new to scene. Stock market day trading has becoming increasingly popular for investors but also comes with big risks. That's why it is critical for day traders to understand the requirements, potential risks, and rewards before getting in too deep.

There are certain requirements and guidelines that the US Securities and Exchange Commission, or SEC, has put in place for day trading. The SEC requires each day trader have at least $25,000 in cash or securities in their day trading account. This is only applicable for those who wish to open a day trade account in the United States. Such restrictions do not exist in the Asian and European stock exchanges. The purchase and sale of a stock on the same day will generate an advisory message from the broker unless the trader has the necessary funds.

There are certain risks associated with day trading. According to a document released by the United States SEC, "Day traders rapidly buy and sell stocks throughout the day in hope that their stocks will continue climbing or falling in value for the seconds to minutes they own the stock, allowing them to rock in quick profits." The SEC goes on to say that day traders usually borrow the money they invest in hopes to bring in higher profits. The reason day trading can be so risky is because outcomes depend on the value of stocks, which are unpredictable because they change on a daily basis.

Day trading can also be rewarding. If done correctly, day trading can bring in huge returns and be extremely profitable. Though day trading is a job for some, it is also a simple investment for others. If you are in a secure financial position and are willing to take a risk, day trading could be the route for you. It is also important to have a good stock market education. So there is a clear understanding of all factors and trends affecting the stock price and trade.