What is Day Trading and what are its benefit

Day trading means that the trader trying to make money buying and selling stocks in a day taking benefit of the daily price movement. Day traders end the day flat.

Some day traders focus on very short or short-term trading, in which a trade might last seconds to a few minutes. They buy and sell many times in a day, trading very high volumes daily and therefore receiving big discounts from the brokerage.

Some day traders focus only on momentum or trends. They are more patient and wait for a ride on the strong move which may occur on that day. They make far fewer trades than the aforementioned traders.

It is usually stated that 80-90pct of day traders lose money. Also price movements in a day are few, so why people trade only in a day? What are advantages of being a day trader?

Benefits of Day Trading

Fewer Stresses
To avoid the risk of price gaps day traders close all their positions at the end of a trading day. Due to this, day trading is less stressful than holding stocks overnight. After market closed you are not worried what will happen until tomorrow and what news will hand out. You never ‘lost sleep'; in the morning have a nice feeling because you don't care what the market's doing at the open.

Contemptible Commission
One thing that makes day trading potentially profitable is commission structure. Day traders pay ‘per share' instead of ‘per trade' structure. If you pay about $10 per trade now when you turn into a day trader, you might pay more than $0.01 per share.

Increased Leverage
Day traders could have 4 times their equity as intraday buying power. This great margin can raise your profits if used shrewdly. This increased leverage makes day trading very dangerous, especially if one has poor discipline, risk or money management.

Profit in any market direction
Day trading often will utilize short-selling to take advantage of downwards stock prices. The ability to lock in profits even as markets drop throughout the trading day is very useful during bear market conditions. Some Techniques of Day Trading

Range trading
A range trader watches a stock that has been increasing off a support price and declining off a resistance price. That is, every time the stock hits a lofty, it falls back to the low, and vice versa. Such a stock is said to be "trading in a range", which is the opposite of trending. The range trader therefore buys the stock at or near the low price, and sells the high.

Trend following
Trend following, a strategy used in all trading time frames, assumes that financial instruments which have been growing bit by bit will continue to increased, and vice versa. The trend follower buys an instrument which has been increasing or short-sells a falling one, in the hope that the trend will continue.

Scalping
Scalping initially referred to spread trading. Scalping is a trading style where small price gaps created by the bid-ask spread is exploited. It usually involves establishing and liquidating a position rapidly, usually within minutes or even seconds. Scalping extremely liquid instruments for off the floor day traders involves taking quick profits while minimizing risk (loss exposure). The basic idea of scalping is to exploit the incompetence of the market when volatility increases and the trading range enlarge.

Rupee falls to 48.03, lowest since Dec 2002

The rupee fell to its lowest since December 2002 on Tuesday, weighed down by a stronger dollar overseas and losses in the local stock market which raised concerns on more foreign fund outflows.

At 12:16 p.m., the partially convertible rupee was at 48.03/04 per dollar, its lowest since Dec. 20, 2002 and 0.5 per cent weaker than 47.80/81 at close on Monday.

India's main share index was down 1.5 per cent as investors were unable to shake off jitters about global economic woes, after initially rising as much as 3.2 per cent on liquidity boosting measures by regulators.

Sensex dips below 12k, rupee at a five-year low

The Sensex plunged to its lowest in more than two years, and the rupee declined to its lowest level in five years to 47.81 against the dollar, as the credit crisis deepened in Europe, reinforcing concerns about the pace of growth of the global economy. The Indian markets declined after Germany bailed out Hypo Real Estate Holding AG for $68 billion and the UK too said it would rescue its lenders.

The Sensex of the Bombay Stock Exchange (BSE) tumbled 724.62 points, or 5.8%, to 11,801.70, the lowest since September 12, 2006. The BSE 200 Index too declined 6.1% to 1,423.32.

The S&P CNX Nifty of the National Stock Exchange fell 5.7% to 3,602.35. Nifty futures for October delivery fell 5.2% to 3,640. According to provisional figures furnished by BSE, FIIs continued offloading stocks in the domestic markets. They were net sellers at Rs 1,169.33 crore, while domestic institutional investors were net buyers at Rs 661 crore.

Amitabh Chakraborty, president-equity, Religare Securities Ltd, said, “A lot of heavy selling kicked in the second half of the trading session as the news of Fortis getting bailed out by the UK govt came in and all European indices opened down by 6%.

Markets witnessed a lot of panic-selling in frontline stocks as well as in select mid-caps by the FIIs and selective HNIs whose positions were highly leveraged.”

And it was not just in India, stocks tumbled worldwide. In fact, emerging market stocks headed for their biggest one-day decline since 1997 as the global banking crisis escalated in Europe. The trigger in the European market was the news that BNP Paribas SA agreed to take control of Fortis after a government rescue failed, and German state and financial institutions put together a $68-billion rescue package for Hypo Real Estate Holding AG.

Oil falling below $90 a barrel for the first time in eight months also did not cheer the markets. The MSCI Emerging Markets Index slumped 6.9%, putting it on course for the biggest slide since the Asian markets meltdown of October 1997.

Russia’s stock market decline, along with China and Brazil, has pushed the benchmark MSCI emerging market gauge down 44% this year, the steepest drop in at least two decades. China’s benchmark CSI 300 Index slid 5.1%, its biggest one-day decline since August, after resuming trading on Monday after a week-long holiday.

Hitesh Agarwal, head-research, Angel Broking, said, “Indian stock markets are feeling the heat of the global liquidity crunch. The present decline is a fallout of the redemptions by foreign institutional investors (FIIs).”

The move by the Securities and Exchange Board of India (Sebi) to relax the norms pertaining to FII investments has come as a welcome relief for the Indian stock markets, Agarwal added.

The slump in share prices prompted overseas funds to reduce holdings, and pushed the rupee to the lowest level since February 2003. The Indian currency fell 1.5% to 47.81 against the dollar, the lowest close since February 14, 2003. The rupee, the second-biggest loser this year among the 10 most-actively traded Asian currencies excluding the yen, is headed for its first annual loss since 2001. The rupee also fell on speculation companies bought dollars to pay for cheaper crude oil. Crude oil fell below $90 a barrel in New York for the first time since February.

Sensex components took a massive beating with Reliance Industries Ltd dropping 6.8% to Rs 1,641.60. Tata Consultancy Services Ltd, the largest software developer in India, declined 5.9% to Rs 619, its lowest since July 2005. Sterlite Industries (India) Ltd, the nation’s biggest copper and zinc producer, dropped 15% to Rs 335.50, the lowest in more than two years.

All the stocks in the Sensex ended the day in red. Of the 2,677 stocks traded on BSE, only 281 stocks managed to advance, 2,369 stocks declined and 27 remained unchanged. All the sectors in the BSE sectoral indices ended the day in the negative terrain.

The move to remove restrictions on overseas derivative instruments and a 50-basis points cut in the cash reserve ratio of banks are expected to elicit a positive response on Tuesday. But the pressure for the indices to touch new lows is expected to remain for a while.

Sensex below 12000, lowest in 2 years

The stock market cracked under pressure from the boiling global financial crisis, with the barometer index tanking 725 points to trade at its lowest level in two years as foreign funds left in search of safer investment havens.

The 30-share stocks barometer Sensex, which lost 529.35 points in the previous session, plunged by another 724.62, or 5.78 per cent to close at 11,801.70.

Funds indulged in selling in consumer durables, metals, capital goods and realty stocks. The Sensex touched the day's low of 11,732.97 and a high of 12,284.49 points.

The slide came even as the subprime lending-induced crisis threatened Europe, prompting Germany to guarantee all private bank accounts worth 568 billion euros to prevent panic withdrawals. Questions about the effectiveness of America's USD 700 billion bailout package for its banks also negatively influenced the sentiment.

Analysts, however, said that the market may bounce back tomorrow as the Reserve Bank and SEBI on Monday announced measures to ease liquidity and trading norms in derivative segment respectively.

The wide-based National Stock Exchange index Nifty dropped by 215.95 points, or 5.66 per cent at 3,602.35 after dipping to a low of 3,581.60 during the session.

In Asia today, China was down by 5.23 per cent, Hong Kong by 4.97 per cent, Japan by 4.25 per cent, Singapore 5.61 per cent, Korea 4.29 per cent and Taiwan 4.12 per cent. European markets also resumed sharply lower.

The market seemed to be bear trap as the main driver, Foreign Institutional Investors (FIIs) pulled out a whopping Rs 1,662.26 crore on October 3 as per provisional data.

Financial crisis in the U.S

It's well past midnight and I am suddenly woken up by the ringing of my mobile phone. Today is one of those rare days when I have forgotten to put my phone on 'silent' mode.

'Why is the wall street going bust?' the rather feminine voice on the other end asks.
It takes me a few seconds to realise who is on the line.

"Mam. It is 2.30 am. Can we discuss this at a more appropriate time?" I thought you know question."Well. I understand things much better after midnight, is what I meant. So I will be highly obliged if you could explain."

"Okay. This is a rather complicated question. Where do we start? You remember in the year 2000, the dotcom bubble went bust. In the aftermath of that the US Federal Reserve started to cut interest rates.'"Let me interrupt. What is the US Federal Reserve," She asks.

"The US Federal Reserve is similar to the Reserve Bank of India. It is the central bank of the country and one of its tasks is to set interest rates. Therefore, after the dotcom bubble went bust, the Federal Reserve started to cut interest rates to ensure that the economy did not go into recession. By cutting interest rates it wanted to ensure that people continue to borrow and consume and hence the economy continues to grow."

"Interesting. But don't you think you are deviating from the point. I want to know about Wall Street not the US Fed."

"Patience, my dear. The long-term interest rate was reduced to 1% by the middle of 2003. That is where it stayed for around the next twelve months. With the interest rates at such low levels, people started to borrow to buy homes. The idea behind this was very simple. The rate of increase in the value of the house would be more than the interest rate to be paid on the loans that had been taken. As more and more people started to believe in this, the home prices in the US started to rise at a very fast pace.""Where is this heading yaar. First you talk about the Fed, now you are talking about homes. I want to know about the Wall Street," she screams on the phone.

"Don't interrupt. Let me continue. Low interest rates, combined with the belief in the idea that house prices will continue to go up, fuelled another bubble Banks and other financial institutions that gave out home loans decided that it was a good opportunity to expand the market. So they decided to give home loans even to those individuals who were not creditworthy enough and would not get a loan in the normal scheme of things, " I explain.

"Hmmm. This is getting interesting, though we are still nowhere near Wall Street."

"In a way the home loan lenders themselves believed in the bubble and hence gave out home loans to individuals who were not creditworthy. Such borrowers are referred to as the sub prime borrowers. In order to attract these borrowers, banks offered home loans with teaser rates. The interest rates would be lower in the first couple of years. This would mean a lower equated monthly installment (EMI) to pay off the loan. In the later years, a higher interest rate would kick in and that would mean a higher EMI. The borrower was completely sold out to the idea of housing prices continuing to go up and he planned to sell the house to make a profit before the higher EMI kicked in."

"But by following this strategy, weren't banks taking in a huge amount of risk?"

"Yes and no. One the face of it, yes it was a risky strategy. But banks and other financial institutions giving out home loans were smart enough to get out of these loans very quickly by securitising them,' I reply/

"Wait a minute. What is this securitising thing you are talking about," she asks.

What they essentially did in case of securitisation was bundle similar kinds of home loans together and make financial securities out of it. These financial securities were then sold to savvy financial investors, most of whom were based out of Wall Street in New York. By selling the financial securities, the bank or the financial institution giving out the home loan did not continue to carry any risk. At the same time, it freed up the money and the bank could lend again. A major part of the EMI paid by the borrower was passed on to the financial institution that bought these securities. " "But why did Wall Street financial institutions buy these securities," she questions.

"They bought it because these securities offered higher returns than other modes of investment available. But they were just investors. They failed to realise the true risk of these securities. The bank or the financial institution giving the loan was best placed to assess how risky a particular loan was. But since it was in a position to securitise the loan, it was only interested in giving out more and more loans, and not assessing the risk involved. Other than this, documents of a lot of sub-prime borrowers were fudged to give them loans that were well beyond their capacity to repay. Initially, with low interest rates, these borrowers continued to repay, but once the teaser rates were over and higher interest rates set in, they simply could not repay and started to default. Once the borrowers realised that they wouldn't be able to continue to repay, they started to sell the property. But, with a lot of selling hitting the market at the same time, there were not enough buyers and this ensured that housing prices started to fall, " came my long wielding explanation.

"Ah. Now I seem to get it. With higher interest rates setting in, sub-prime borrowers started to default. Once this happened, all the Wall Street financial institutions that had invested in these securities stopped getting their money back. And once more and more borrowers started to default these hallowed institutions went bust. Wow, in hindsight, everything seems so explainable, " she exults over the phone.

"Yes Mam. Now that you have understood, why don't you think about it and I'II go back to sleep.'

Three reasons why you shouldn't panic and sell your stocks

The government bailout that was supposed to save the financial sector from certain doom failed to pass vote on Congress. Does that mean we now face certain doom? I think not.

I don't want to sound Pollyanna-ish and I don't really have a crystal ball (as my headline promises), but here are some reasons why investors should not panic and sell their stocks now:

First, as frightening as the market looks -- the Dow fell 778 points for its worst one-day drop ever -- there is going to be a rebound.
If you sell at the bottom, you will miss out on an eventual recovery. If you really want to get out, wait for a bounce and then sell some of your stock holdings. Don't sell into a freefall. Think about it: the S&P fell an astounding 8.79% on Monday -- the worst percentage drop in more than 60 years, except for 1987's Black Monday crash. The Nasdaq fell 9.14%. Given the devastation, I think a bounce could come as soon as Tuesday since there will no doubt be some news that has to be better than Monday's.

Incidentally, this "don't sell in a panic" advice is the same you'll get from any financial advisor worth his or her salt. If you're invested in the market for the long term, you should ride out such waves and -- if you're really brave -- even use episodes of panic selling to buy more stocks.

Second, a private sector solution to this problem is possible.
We've seen Warren Buffett invest $5 billion of his capital into Goldman Sachs and stronger financial institutions step in to buy the weak. There is plenty of additional capital out there that could come in and boost the banks. Heck, Barron's just ran a cover story about how profitable the government's purchase of toxic waste would ultimately prove. If the magazine is right, some of those hedge funds will surely come in and slurp up some of this slop.

What if a private sector solution doesn't materialize? Then you should be glad that the bailout plan on the table Monday didn't pass. It could be a sign that the U.S. might well have been just throwing good money after bad by buying all those billions of bad debt.

Third, If credit markets stay frozen and banks keep going bust, I think Congress will pass some kind of Federal aid package that will stabilize the financial system.
It may take a few painful weeks of market turmoil and economic hand-wringing, but hopefully it will be better than the package that failed to pass the House today.

There are plenty of other options for how such a bailout could be structured -- such as the government getting preferred stock in exchange for injecting capital, or the Feds finding a way to provide a more direct boost to the long-suffering housing market. A lot of folks are going to be fighting it out to come up with a plan that will both work and pass and I think they will succeed.

A modest proposal: Ban credit cards

Well why not?

What if they outlawed credit cards? Would the world end? Would it be financial Armageddon? Would we shuffle from food line to water queue in our now-tattered $250 blue jeans?

It's never gonna happen, we know. So play along with me here. I'm not talking about business credit. That's an altogether different animal (currently in hibernation). I'm talking consumer debt. This idea that we can have the McMansion AND the boat AND the trips AND the kitchen remodel because we could, up until just a bit ago, borrow all that money to do so.

And look where we are today.

What if we *had* to live within our means again? What if we couldn't buy whatever we wanted because we didn't have credit cards? Would it suck? Heck yeah. But only because we've gotten so used to having credit, and being able to buy those cute shoes or fund our student film or buy that iPhone because it's so cool and you just gotta have it.

In other words, what would happen if we couldn't have all that...stuff...unless we actually had the cash for it? We'd have to get used to saving again. Saving actual dollars (while they're still worth anything at all, I mean). What if you had to do the now unimaginable and save a 20% cash downpayment before buying a new house? Wouldn't that kind of thinking actually help our economy down the road? A nation of savers is a good thing, isn't it?

We wouldn't be so in debt. We wouldn't have so much superfluous stuff. We might work less and live more. Thrift might come back into style.

Being truly forced to live within our means would really foul up our carefully-crafted consumer society, true. But as I'm told, many generations of people have managed to do so. My dad tells me that in the '60s you went to the bank on a Friday with your paycheck, and took out enough cash to get through until the next week. If you ran out...well...tough luck.

So set me straight please. Why couldn't we just ban credit cards forever? It's just a thought, given today's financial meltdown...caused by the credit crisis.