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Defining swing trading and day trading and knowing their differences

Traders may find confusion between day and swing trading because, in essence, they are almost the same. Their only difference is the element of time.

Understanding day trading

To further understand what day trading means, let us define first what a d

ay order means. A day order is an order instruction from a trader to a broker about how an asset should be bought or sold. A day order gets executed when the investment hits a specific price during the trading day the order was made. The order will expire as soon as the market closes if it did not beat the specified price. The two types of day orders are limit and stop day orders.

Understanding swing trading

In swing trading, a trader understands that there are risks when there are up and down gaps that are opposed to your position overnight. Due to this reason, a trader may prefer a smaller position size. A swing trader can profit from up to 50% margin overnight, but this move can be significantly risky when there is a margin call.

The significant difference between swing trading and day trading

As we have mentioned, day ad swing trading may seem similar, and the only thing that may set them apart is the time element. However, let us elaborate more on their differences so that we can understand and use them better.

Time. It is the most apparent difference between the two. Day trading happens in minutes to hours, while swing trading happens anywhere from days or weeks. Day traders do not hold their position longer than a day because it only happens intraday, and intraday means business hours. This reason helps day traders avoid risks caused by events and news that impact the market. On the other hand, swing traders should be alert. A stock’s opening can have a significant difference from yesterday’s closing.

If we read the previous statement, we can say that day trading may be a safer strategy. However, a shorter time frame also comes with risks because the wider the spread, the bigger the ask and commissions. This will chop off a considerable percentage of your profit before you know it. From this angle, we can say that swing traders have bad news and good news. The bad news is that swing traders are not safe with this issue too. But the good news is: swing traders do not need to work hard and let brokers benefit from everything.

Swing trading, day trading, and leverages

Day traders have ways to avoid too many commission expenses. They can leverage their portfolios with higher margins, four folds higher than the buying power instead of just two folds. Massive leverage positions can give a better profit potential to avoid commission expenses. However, there is always unpredictability. A day trader may lack determination, skill, or luck that may lead to massive losses and an unrecoverable state. On the other hand, swing traders may have huge losses but not to the point of being in an unrecoverable state as they are not highly leveraged.

As a summary

Day trading and swing trading have many similarities and differences. It is a trader’s responsibility to know them and understand how markets work further and trade better.