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Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Day trading is a short-term, high-risk type of active trading, where investors buy and sell securities within a single trading day, in order to capitalize on rapid price movements. Day traders often rely on specific strategies, as well as technical analysis tools, to take advantage of small fluctuations in highly liquid securities such as stocks, options, and other financial instruments.

Day trading differs in a few ways from the buy-and-hold approach often taken by long-term investors. In addition to its intraday focus, FINRA (the Financial Industry Regulatory Authority) requires that day traders use a margin account — i.e., borrowed funds from a brokerage — which means that only qualified investors can day trade. Investors with cash accounts cannot make day trades.

Owing to the rapid pace and the use of leverage, day trading is considered a high-risk endeavor best suited to more experienced investors.

What Is Day Trading?

Day trading refers to the practice of making fast-paced trades within a single day in order to pursue quick returns. The Securities and Exchange Commission (SEC) says that “day traders buy, sell and short-sell stocks throughout the day in the hope that the stocks continue climbing or falling in value for the seconds or minutes they hold the shares, allowing them to lock in quick profits.”

An example of day trading might be:

An investor buys 100 shares of XYZ Company at 10:30am, and sells them at 11:00am.

If an investor buys 100 shares of XYZ Company and then sells them the following day, that’s not considered a day trade.

Experienced day traders typically cultivate a range of strategies they employ, often with the use of technical analysis tools (which help identify price and trend patterns). Because they’re often investing online via certain platforms, day traders may open and close positions within hours or even seconds, in their quest for gains.

How Long-Term Investors Differ From Day Traders

A long-term investor, conversely, may buy a stock because they think that the company will grow its revenue and earnings, creating value for itself and the economy. Long-term investors believe that that growth will ultimately benefit shareholders, whether through share-price appreciation or dividend payouts.

A day trader, who focuses on self-directed investing tactics, is less concerned with whether a company or a security represents “good” or “bad” value. Instead, they are concerned with how price volatility will push an asset like a stock higher in the near-term.

Day trading is a form of active investing, whereby an investor attempts to manage their investments and outperform or “beat” the stock market.

Technical Analysis and Day Trading

Technical analysis includes different methods to identify price patterns and potentially forecast future movements.

While some tools are useful for understanding company fundamentals, technical indicators identify patterns in price and volume data to give traders insights about short-term price movements.

Although technical indicators can help identify price trends and patterns, it’s best to combine different indicators when conducting stock analysis. A general rule of thumb in investing is that past performance never guarantees future results. However, technical analysts believe that, in part because of market psychology, certain market patterns tend to repeat themselves.

What Is Support and Resistance?

Support and resistance are price levels that traders look at when they’re applying technical analysis. “Support” is where the price of an asset tends to stop falling and may turn around; “resistance” is where the price tends to stop climbing, which may signal a downturn.

So, for instance, if an asset falls to a support level, some traders may believe that buyers are likely to swoop in at that point, in anticipation of seeing a profit.

Recommended: A User’s Guide to Day-Trading Terminology

The Use of Margin When Day Trading

Margin accounts are a type of brokerage account that allows certain qualified investors to borrow money from their broker to purchase securities. The securities in the account act as collateral for the loan. The interest rate on the borrowed money is determined by the brokerage firm.

Trading with this borrowed money — called margin trading — increases an investor’s purchasing power, but comes with much higher risk. If the securities lose value, an investor could be left losing more cash than they originally invested, after the margin loan is repaid, plus interest and any fees.

In the case that the investor’s holdings decline, the brokerage firm might require them to deposit additional cash or securities into their account, or sell the securities to cover the loss. This is known as a margin call. A brokerage firm can deliver a margin call without advance notice and can even decide which of the investor’s holdings are sold.

What Is a Pattern Day Trader?

A pattern day trader is a designation created by FINRA. A brokerage or investing platform will classify investors as pattern day traders if they day trade a security four or more times in five business days, and the number of day trades accounts for more than 6% of their total trading activity for that same five-day period.

Until recently, when an investor was identified as a pattern day trader, they would have to maintain at least $25,000 in their margin account. Otherwise, the account could be restricted per FINRA’s day-trading margin requirement rules.

As of September 2025, however, FINRA decided to amend that rule, removing the $25,000 requirement, and replacing it with the current standard for maintenance margin for intraday exposure ($2,000). This move could make day trading easier for newer and less experienced traders. This rule change is pending SEC approval.

5 Common Day-Trading Strategies

Following are five common types of day trading strategies, some of which can also be applied to slightly longer-term positions of a few days or a week.

1. Momentum Trading

Momentum trading is when traders spot a significant change in price or volume and buy that asset with the intent of riding the trend to an even higher point, in order to reap a gain. Rather than “buy low and sell high,” as the old saying goes, momentum traders look for opportunities that will enable them to buy high and sell higher.

2. Scalp Trading

In scalp trading, or scalping, the goal is to make a significant profit from a series of small gains. Generally, this means taking a large position in a stock or other security, waiting for it to increase in value by a small amount (perhaps a few cents), then quickly selling it.

The success of scalping depends on being able to make a swift exit when the target profit has been reached. Scalp traders might make a few dozen or a few hundred trades in a single day.

3. Swing Trading

Swing trading is a type of stock market trading that attempts to capitalize on short-term price momentum in the market. The swings can be to the upside or to the downside.

Generally, a swing trader uses a mix of fundamental and technical analysis to identify short- and mid-term trends in the market. They can go both long and short in market positions, and use stocks, ETFs, and other market instruments that exhibit volatility.

4. News-Based Trading

News-based day trading is very much what it sounds like: a strategy whereby day traders track market-moving news events (e.g., interest-rate changes, economic data) and take positions that may enable them to profit from these short-term price fluctuations.

News-based day trading can also involve watching headlines specific to a certain company or industry — a merger, bankruptcy, or weather event, for example.

Sophisticated news-based traders are often able to anticipate certain price movements before they’re fully priced into the market. But this is a high-risk strategy, as predicting the news, and the market’s reactions to it, can be hard to do.

5. Limit and Market Orders

There are various types of orders that day traders rely to make their strategies as effective as possible.

•  A limit order is when an investor sets the price at which they’d like to buy or sell a stock. For example, you only want to buy a stock if it falls below $40 per share, or sell it if the price rises to over $60. A limit order guarantees a particular price but does not guarantee execution.

•  With a market order, you are guaranteed execution but not necessarily price. Investors get the next price available at that time. This price may be slightly different than what is quoted, as the price of that underlying security changes while the order goes through.

Best Securities for Day Trading

Day traders can work across asset classes and securities: company stocks, fractional shares, ETFs, bonds, fiat currencies, or commodities like oil and precious metals. They can also trade options or futures — which are different types of derivatives contracts.

The Importance of Liquidity, Volatility, and Volume

When deciding the best securities for day trading, there are some commonalities that certain markets tend to have, including liquidity, volatility, and volume.

Liquidity

Liquidity refers to how quickly an asset can be bought and sold without causing a significant change in its price. In other words, how smoothly can a trader make a trade?

Liquidity is important to day traders because they need to move in and out of positions quickly without having prices move against them. That means prices don’t move higher when day traders are buying, or move down when they’re starting to sell.

Volatility

Market volatility can often be considered a negative thing in investing. However, for day traders, volatility can be essential because they need big price swings to potentially capture profits.

Of course, volatility could mean big losses for day traders too, but a slow-moving market typically doesn’t offer much opportunity for day traders.

Volume

High stock volume may indicate that there is a lot of interest in a security, while low volume can indicate the opposite. Elevated interest means there’s a greater likelihood of more liquidity and volatility — which are, as discussed, two other characteristics that day traders look for.

Understanding Penny Stocks

Penny stocks — shares priced at pennies to up to $5 apiece — are often popular among day traders. However, they can be difficult to trade because many are illiquid. Penny stocks aren’t typically traded on the major exchanges, further increasing potential difficulties with trading. Typically, penny stocks sell in over-the-counter (OTC) markets.

Day Trading Basics — How to Get Started

Before starting to day trade, some investors set aside a dollar amount they’re comfortable investing — and potentially losing. They need to figure out their personal risk tolerance, in other words.

Getting the hang of day trading can take some time, so newbie day traders may want to start with a small handful of stocks. This will be more manageable and give traders time to hone their skills.

Good day traders can benefit from staying informed about events that may cause big price shifts. These can range from economic and geopolitical news to specific company developments.

Here’s also a list of important concepts or terms every prospective day trader should know.

Recommended: How Many Stocks Should I Own?

1. Trading Costs

If you’re utilizing day-trading strategies, it’s wise to consider the cost. Many major brokerage firms accommodate day trading, but some charge a fee for each trade. This is called a transaction cost, commission, mark up, mark down, or a trading fee. Some firms also charge various other fees for day trading or trading penny stocks.

Some platforms are specifically designed for day trading, offering low-cost or even zero-cost trades and a variety of features to help traders research and track markets.

2. Freeriding

In a cash account, an investor must pay for the purchase of a security before selling it. Freeriding occurs when an investor buys and then sells a security without allowing the trade to settle. This is not allowed under the Federal Reserve Board’s Regulation T.

In cases where freeriding occurs, a broker may freeze the investor’s account frozen for a 90-day period. During the freeze, an investor is still able to make trades or purchases but must pay for them fully on the date of the trade.

3. Tax Implications of Trader vs Investor

The IRS makes a distinction between a trader and an investor. Generally, an investor is someone who buys and sells securities for personal investment. Certain traders, on the other hand, are considered by the law to be operating a business.

According to the IRS, a trader must meet the following requirements below. If an individual does not meet these guidelines, they are considered an ordinary investor.

•  “You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation;

•  Your activity must be substantial; and

•  You must carry on the activity with continuity and regularity.”

The tax implications are different for each, in that an investor who meets the requirements for trader tax status can take certain tax deductions, and their gains are taxed as ordinary income (including unrealized gains at the end of the tax year).

Investors, by contrast, are subject to short- and long-term capital gains tax rules.

The rules here can be complicated, and it may be wise to consult a tax professional.

4. Capital Gains Tax

In order to understand how capital gains rates may apply to you, it’s necessary to know whether the IRS considers you an investor or a trader, as noted above.

For ordinary investors, investments held for over a year are subject to long-term capital gains and those held for under a year fall under short-term rules. While long-term capital gains benefit from a lower tax rate, short-term capital gains are taxed at the same rate as ordinary income. If you’re an ordinary investor making day trades, this may apply to you.

The difference for those with trader tax status is that their gains and losses are not subject to capital gains rules, or rules for the treatment of losses.

A capital loss occurs when an investment loses value. In certain circumstances for ordinary investors, when a capital loss exceeds a capital gain, the difference could potentially be applied as a tax deduction. Some brokerages may also offer automated tax loss harvesting as a way to strategically offset investment profits.

Different rules apply to traders who are deemed to be running a business, however.

5. Wash-Sale Rule

While capital losses can sometimes be taken as a tax deduction, there are certain regulations in place to prevent investors from abusing those benefits. One such regulation is the wash-sale rule, which says that investors cannot benefit from selling a security at a loss and then buy a substantially identical security within the next 30 days.

A wash sale also occurs if you sell a security and then your spouse or a corporation you control buys a substantially identical security within the next 30 days.

Which Day-Trading Strategy Is Best for Beginners?

There’s no single answer that’s going to be correct for every trader. But investors might want to stick to the simpler strategies. For instance, they could take a try at technical analysis to try and determine which trades may end up being profitable. Or, they could stick with swing trades.

Perhaps the most important thing to keep in mind is that day trading, as mentioned, comes with a much higher exposure to risk than other types of trading.

Best Times to Day Trade

As mentioned, day traders seek high liquidity, volatility and volumes. That’s why when it comes to stocks, the first 15 minutes of the trading day, after the equity market opens at 9:30am, may be one of the active stretches for day traders.

The stock market tends to be more volatile during this time, as traders and investors try to figure out the market’s direction and prices react to company reports or economic data that was released before the opening bell. Volume also tends to pick up before the closing bell at 4pm.

For futures, commodities and currencies trading, markets are open 24 hours so day traders can be active around the clock. However, they may find less liquidity at night when most investors and traders in the U.S. aren’t as active.

Day Trading Risk Management

The SEC issued a stern warning regarding day trading in 2005, and that message still holds value today. They noted that most people do not have the wealth, time, or temperament to be successful in day trading.

If an individual isn’t comfortable with the risks associated with day trading, they shouldn’t delve into the practice. But if someone is curious, here are some steps they can take to manage the risks that stem from day trading:

1.    Try not to invest more than you can afford. This is particularly important with options and margin trading. It’s crucial for investors to understand how leverage works in such trading accounts and that they can lose more than they originally invested.

2.    Investors and traders often benefit from monitoring volatility. One way to do this is by finding one’s portfolio beta, or the sensitivity to swings in the broader market. Adjusting one’s portfolio so it’s not too sensitive to volatility may be helpful.

3.    Day traders often benefit from picking a trading strategy and sticking with it. One struggle many day traders contend with is avoiding getting swept up by the moment and deviating from a plan, only to lock in losses.

4.    Don’t let your emotions take the driver’s seat. Fear and greed can dominate investing and sway decisions. But in investing, it can be better to keep a cool head and avoid reactionary behavior.

Is It Difficult to Make Money Day Trading?

While it may feel like it’s easy to make a couple of lucky moves and turn a profit from some trades, it isn’t easy to make money day trading. Again, day trading is high risk, and new traders would do well not to assume they’re going to make any money at all.

There are professional traders out there, but they are experienced, and tend to use professional-grade tools to inform their decisions. New traders shouldn’t expect to emulate a professional trader’s success.

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The Takeaway

Day trading involves making short-term stock trades in an effort to generate returns. It can be lucrative, but is extremely risky, and prospective traders would likely do well to practice and learn some tools of the trade before giving it a shot. They’ll also want to closely consider their risk tolerance, too.

Again, while stock investing can be an important way to build wealth for individuals, it’s crucial however to know that the consequences of risky day trading can be catastrophic. Investors need to be disciplined, cautious and put in the time and effort before delving into day-trading strategies.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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FAQ

What is day trading and how does it differ from other trading strategies?

Day trading involves making short-term trades with stocks or other securities in an effort to make a profit. Other strategies may involve longer-term investments, which are not bought and sold on a daily basis.

Are there any risk-management techniques specific to day-trading strategies?

Traders can do many things that may help limit their risk exposure. These can include using certain strategies they’ve found to be effective; setting up stop-losses or other orders; and diversifying their portfolios.

Are day-trading strategies suitable for all types of markets, such as stocks, forex, or?

Day trading can be done in many asset classes and markets, which can include stocks, forex, and even. But the markets for different securities tend to behave in different ways. Learning the ins and outs of each market is key, in order to apply the best strategy when day trading a certain security.

How much capital is typically required to implement day trading strategies?

Day trading requires the use of a margin account. The initial margin requirement is generally $2,000, with a 50% maintenance margin requirement, but terms can vary according to the broker and depending on the security.

Are there specific timeframes or market conditions that are more favorable for day-trading strategies?

Some favorable times of the day for day traders may be immediately after the markets open, and shortly before they close. There may also be more market action on certain days of the week (Mondays, for instance) which may create favorable conditions for day traders.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

This article is not intended to be legal advice. Please consult an attorney for advice.

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