The Definition Of Day Trading
Day trading consists of the direct opening and closing of stock positions with major stock exchanges, either using a computer on the trading floor of a branch office of a day trading firm, or using one’s home or business computer to access an internet broker. DIRECT is the operational word in the above definition. Day trading would require the trader to have direct electronic access to one or two sources – the stock market cognoscente of NASDAQ (also known as market makers) and/or a dedicated specialist from the NYSE.
The market makers are NASD brokers and dealers who buy or sell NASDAQ stocks for the accounts of others, engage in the securities business for their own proprietary accounts. In essence, the market makers are stock merchants. They are called market makers, because the sheer volume of merchants trading any given NASDAQ stock would be creating a market for that stock.
On the other hand, one NYSE stock will have one assigned NYSE specialist. This would be a dedicated NYSE specialist whose aim is to monitor that security and keep the trading fair and organized. The specialist can serve his/her duty as a dealer or as a broker – as a dealer, he/she would act as the chief point person when trading for their account, as a broker, he/she can carry out orders on behalf of other securities brokers. The specialist would need to play a principal, or sovereign role because somebody, after all, would be needed to make sure the security remains marketable, and also to nullify any existing discrepancies in said stock’s supply and demand.
Stockbrokers are not necessary in the world of a day trader. The broker is superfluous in this case as the trader does not reach him/her via phone, and on his/her end, the broker has no need to relay an order to his/her firm’s order desk. The clerk is not routing that order to the market maker. Such is the convenience of day trading firms. Day trading firms, as a result of all this, do not encounter the ubiquitous time delays and costs in conjecture to the use of middlemen that other firms may encounter when processing orders. So as you can see, day traders do not spend much time or money by acting as their own brokers.
The day trader can simply key in the stock symbol on a computer that has specialized trade execution software, press the appropriate function key, and buy or sell shares of stock on a major exchange. The software used by the day trading firms for order execution is relatively user-friendly7 and provides an efficient interface between the stock exchanges and the day trader.
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