The Hindu Business Line : Trader's Corner

In the middle of the 19th Century, there was a gold rush in America that tore men from their well-settled lives in search of the yellow metal that promised to make them rich overnight. A modern day parallel can be drawn between the day trading fever that overtook India in 2005 and early 2006. As the markets kept climbing higher and higher, the sight of the riches being earned by their neighbours lured more and more people into the maze of day trading.

Day trading is a trading style that has traders buying and selling stocks during the trading day. The position is kept open for anywhere between few minutes to few hours. The positions are seldom carried forward to the next day. Since positions are squared off the same day, the margin requirements are minimal. It is this facet of day trading that attracts the masses. The buying and selling is done far in excess of the margins deposited with the brokers.

Since the subject of day trading needs greater attention when compared to the other trading styles, we will devote the next few weeks addressing the issues related to this trading style.

Day trading is a perfectly sane trading style when followed by traders who are well entrenched in the markets and are familiar with its vagaries. This style turns risky when used by people who are new entrants. There are numerous misconceptions and pitfalls associated with day trading. Some of these are enumerated in the Securities and Exchange Commission of USA's Web site. Some of the dos and don'ts prescribed by this Web site are:

`Don't believe claims of easy profits'.

Watch out for "hot tips" and "expert advice" from newsletters and Web sites catering to day traders.

Remember that "educational" seminars, classes and books about day trading may not be objective. Check out day trading firms with your state securities regulator.

That is, do your homework well before launching in to a day trading career. The more the effort that is put in, in learning the techniques, the greater are the chances of a long-term success.

Lokeshwarri S. K.

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