What Is Day Trading & How Does It Work in 2025?

What Is Day Trading?

Day trading refers to trading financial assets within a single trading day. Day traders create entries and exits for their trades on the same day. In the FX market, the 24-hour nature means that for a trade to qualify as an FX day trade, the trader must open and close the position between 10:00 pm UTC and 9:59 pm UTC. Even though this timing spans two regular days, it is actually one trading day in the FX market.

When you are day trading stocks or index assets, the timing is different. These markets do not operate 24 hours a day but only open for a few hours each day. So, day trading stocks or index assets will require opening and closing positions during market hours.

What Is Pattern Day Trading

Pattern day trading (PDT) is a classification of the US Financial Industry Regulatory Authority (FINRA) that refers to day trading activity spanning five trading days and involving four or more trades per day, accounting for 6% of total trading activity during that period.

To properly understand the pattern day trading rules and their classification, you must understand what a 1-day trade is.

If a trader opens and closes a day trading position on the same day, each trade counts as 1 day trade. Suppose the trader opens a position of 100 units of a stock, sells off 50 units some time later, and then buys 200 units and closes the entire position, which is now worth 250 units, within the trading session. The entire trade sequence is treated as a single trade, even though it involves multiple purchases and sales of stock units.

However, opening and closing an entire position within the same session counts as one trade. If, in the example above, the trader bought 100 units, sold them, then bought 200 units and sold them again, this counts as 2 day trades. Do this up to four times or more in the same session, and the pattern day trading rule kicks in.

The pattern day trading rule requires the trader to have at least $25,000 in their day trading stock account as account capital. Regulatory demands mandate the broker to restrict trading if the capital falls below $25,000. Trading is restored once the trader meets the $25,000 capital adequacy requirement.

The pattern day trading rule does not apply to cash-only or futures accounts, which are regulated differently. Pattern day trading is widely unpopular, and traders attempt to beat this rule by maintaining futures-only accounts or operating cash-only accounts. Those who cannot beat it must comply by maintaining a minimum capital of $25,000 at all times.

What is Day Trading Stocks?

What is day trading with regards to stocks? The practice of day trading stocks refers to the opening and closing of stock market positions within the same trading session. Market hours will differ from one index to another. For instance, the Nasdaq and the German DAX 40 indices do not trade for the same number of hours, and save for a little overlap period, do not trade at the same time. Consequently, any stocks listed on those indices will be open only during each index’s trading hours. In the same vein, those who want to trade the shares of Reliance Power on the Indian bourse will be forced to do it at totally different market hours.

Day trading of the stock market employs various strategies. Some traders trade the chaos of the market open, basically deploying scalping strategies. Others prefer to wait until the market chaos has quietened and an intraday pattern has emerged.

What Is the Best Day Trading Platform?

There are different trading platforms for different markets. The best day trading platform for one market, say FX, may not be the best for another market. The critical factors in choosing the best day trading platforms are:

• low fees
• fast executions
• good charts and analysis tools
• live market news

Day traders typically trade more times than swing traders or position traders. So getting the lowest fees and the best executions is key to their activity. Being able to respond quickly to breaking market news also helps profit from volatility in the FX or stock markets.

Day Trading for Beginners

Foe those starting day trading for the first time, the following steps are involved to commence.

• Get some knowledge. This article is a good place to start.
• Open a trading account and download a day trading platform. Where you open the account and which platform you use will depend on the market you choose to day trade.
• Get verified by submitting your ID documents to your broker.
• Research the brokers you want to use and make sure your eventual choice is the best day trading broker for your situation.
• Follow the regulations around day trading for your region.

What Is Swing Trading vs Day Trading?

Swing traders usually keep their trades for several days to several weeks. Their trading history is therefore more extensive than in day trading. Let’s compare swing trading to day trading.

Day trading

The duration of trades starts from seconds to minutes and lasts no more than a few hours. The trader aims to make small profits by riding on intraday volatility. The time frames used for trading are typically 1m, 5m, 15m, and 1H. Scalping and trading the initial news spikes are common day-trading strategies.

Swing trading

Here, traders tend to leave trades open overnight, and trades can last for days and even a few weeks. The trader’s objective is to profit from large price swings as the asset rides the trend or reverses from it. The time frames available are 4H, daily, and weekly. Swing trading strategies are driven by macroeconomic data, risk events, market sentiment, and earnings reports.

FAQ