Day Trading

Stock trading dictionary: meaning, example and how traders use it.

Last updated: October 17, 2026

Definition: Day Trading is the practice of buying and selling stocks or other securities within the same trading day, closing all positions before the market closes, in an attempt to profit from short-term price movements.

How day trading works

Day traders open and close positions during the regular market hours of 9:30 a.m. to 4:00 p.m. Eastern, and some also trade in the pre-market and after-hours sessions. They usually avoid holding positions overnight, which removes exposure to overnight news gaps but leaves the trader dependent on intraday moves. Because they trade frequently, day traders pay close attention to liquidity, the bid-ask spread and the speed of order execution, since small costs add up across many trades.

The pattern day trader rule

Under long-standing FINRA rules, a customer who makes four or more day trades within five business days in a margin account, where those trades are more than 6% of total trades in that period, is generally classified as a pattern day trader. Pattern day traders must keep at least $25,000 in equity in the account on any day they day trade. Brokers may apply stricter policies, and the rules can change, so confirm the current requirements with your broker. Cash accounts are not subject to this rule, but trades must settle before the proceeds are reused, and US stock trades settle on T+1.

Common day trading strategies

  • Momentum: trading stocks moving strongly on news or unusual volume.
  • Breakout trading: entering when price clears an intraday range or prior high.
  • Range trading: buying near intraday support and selling near resistance.
  • Scalping: very short holds aiming for small gains on many trades.

Most day traders rely on intraday charting, level-two quotes and predefined stop levels.

Day trading example

Suppose a trader buys 200 shares at $25.00 at 10:15 a.m. after a breakout, with a stop at $24.70 and a target of $25.60. If the target is hit, the gain is $120 before costs. If the stop triggers, the loss is $60, plus any slippage if the order fills below $24.70. By keeping the potential loss at half the potential gain, the trader can be wrong more often than right and still break even, but only if the plan is followed consistently.

Risks of day trading

Day trading is demanding and many participants lose money. Fast markets can cause slippage, leverage magnifies losses, and emotions often lead to overtrading. Gains are typically short-term capital gains taxed at ordinary income rates. Anyone considering it should start small, track every trade, and treat it as a high-risk activity rather than a reliable income source.

A written trading plan helps. It should define which setups you trade, the maximum loss per trade and per day, the times of day you will trade, and the conditions under which you stop for the session. Reviewing a trade journal each week shows whether results come from a real edge or from luck.

Frequently asked questions

How much money do you need to day trade?

Under the long-standing FINRA rule, pattern day traders in a US margin account must maintain at least $25,000 in equity. A cash account avoids that requirement but must wait for trades to settle before reusing funds.

Is day trading profitable?

Some traders profit, but studies of retail day traders have generally found that most lose money over time after costs. It carries significant risk.

Can you day trade in a cash account?

Yes, but you can only use settled funds, so proceeds from a sale must settle before they can be used again for a new purchase.

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For information only, not investment advice. See the disclaimer.