Trading CFDs involves a significant risk of loss that may not be suitable for all investors. Please ensure you fully understand the risks and take appropriate care to manage your exposure.
For more information please read our Risk Disclosure

Trading CFDs involves a significant risk of loss that may not be suitable for all investors. Please ensure you fully understand the risks and take appropriate care to manage your exposure.

The difference between Day Traders and Swing Traders

Day trading and swing trading are types of trading that can occur in the forex or stock market but are not limited to these markets.

What are Day Traders

Day traders hold securities for a single day. They close out their positions at the end of each day and start all over the next day. They often have a huge capital base. With this huge capital base, they are able to leverage on small price movements in stocks and currencies that are highly liquid. Their main objective is to earn income from small profits on numerous trades. By the end of the day, they do not own any share or keep any position in the market.

What are Swing Traders

In contrast, swing traders hold securities for longer periods, perhaps days or a few weeks. It has been widely described as a fundamental type of trading where positions are held for more than one day. The premise for this kind of trading lies in the argument that changes in corporate fundamentals generally require about a week, or several days, in order to cause a significant price movement that yields a substantial amount of profit. Thus, it can be deduced that the main objective of a swing trade is to identify the overall trend and thereafter capture gains within that trend. To aid them to do this, a technical analysis is carried out in order to identify the stocks that possess a short-term price momentum. Aside from analyzing price trends and patterns, swing traders also utilize the fundamental and intrinsic value of stocks. A swing trader undertakes an overnight risk which may result in upward or downward movements in relation to the held position.

What is the difference between Day Trading and Swing Trading

The key distinction between day trading and swing trading lies in the time frames that positions are held. Day trading positions are held for a day only whereas swing trading positions are held overnight to several days or weeks. While comparing the amount of effort required to trade, day trading emerges as the one that requires the most amount of effort. With day trading, you are required to frequently analyze the market on a daily basis and to make real-time decisions. On the other hand, swing trading relatively requires less effort as compared to day trading. In-depth analysis is required and should not be undervalued. However, there would be fewer trade decisions to make in comparison with day trading.

The Difference in Profit Making

As far as profit is concerned, swing trading has more profit potential and yields more profit than day trading. This is closely tied with the time frames of trading. A larger time frame often corresponds to a greater profit target. When making a comparison on the money management front, day trading allows a trader to use up to four times of their available cash of trading. Swing trading, on the other hand, allows only a maximum of two times of a trader's available cash. As far as risk is concerned, day trading has the highest level of risk. This is because of the high amount of leverage that a day trader has. It is a good practice to reduce the amount of margin you use on any trade as your account value increases in size. This will help improve your risk profile. Swing trading, on the other hand, has quite less risk. This is because a swing trader has less margin to use on every trade, thus reducing the risk of the trade. However, overnight holding poses a great risk in swing trading.

Conclusion about Day Trading and Swing Trading

Therefore, we can conclude that both day and swing trading have some degree of risk. In addition, day trading requires more effort, complete focus and high concentration whereas swing trading is less demanding. Even so, both types of trading require technical analysis and should be undertaken by experienced traders who can appreciate the risks associated with trading. Each investor ought to assess their own individual dispositions and interests so as to decide on which kind of trading is best suited for them. It is only then that a decision can be made regarding which type of trading to use for the situation at hand.  

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