If you are practicing risky selling or buying of financial instruments then you are into the business of day trading and you are called a day trader. There are different categories of financial instruments which is either cash or other instrument’s derivatives. They readily available in tradable forms and is not present in the outside context of financial markets.
In the pace of modern commerce, if fungible credit is created then this legal interest are transformed where most business people accept notes from third parties backed up by worthy credit parties such as banks. The consequence of such action is that security became a transferable interest which represents financial value.
Securities can be categorized either as equity securities and debt, or between registered securities and bearers. Different usage created for securities changes both for the holder and issuer. Capital raisings purpose also defines the securities characteristics expanding vastly over modern times. A certificate is often the representation of a security. It includes shares of bonds, mutual funds or corporate stocks issued by governmental agencies and corporations, stock options, several investment instruments, and units of limited partnership.
Stock is defined in financial terminology as a raised capital of a corporation issued and distributed through shares. Shareholders can be either an organization or a person holding the shares, or fractions of the shares of a certain corporation’s stock. Market capitalization is the aggregation of the value of issued shares by a corporation. An individual must know the basic criteria of a suitable stock to become successful in stock day trading. You can be considered a potential stock day trader if you know the four most important characteristics.
- Good Liquidity. Liquidity refers to the existence of buyers and sellers in sufficiently larger quantities on certain stocks permitting another trader to easily and quickly acquire a position or exits it in the stock. It is important that a day trader is requiring fast executions within prices that are relatively predictable.
High liquidity has an extra advantage because it generally reduces the spread of bid-ask in a certain stock leading to the reduced costs execution of a day trader. Liquidity cannot be measured quantitatively but it is only based on several important factors including volumes, number of shares, ownership breadth, and numbers of market makers.
- Volume is a liquidity component that is measured easily. A good stock day trading should at least trade 500,000 shares per day or much better if it exceeds this amount. High volumes of stocks are permitting a day trader in acquiring or selling stock in larger quantities without affecting the stocks’ price.
- Good volatility. Volatility is the expected or actual movement of the stock’s price (up or down) within a certain period of time. Little movements in pricing are not a good candidate in day trading. 2.00 dollars fluctuation in stock prices is a good choice.
- Transparency of the price is the ability of obtaining information following an order flow in a certain stock called as market depth. Quote systems such as Nasdaq II (displays information from highest ask prices and lowest bid prices) and NYSE (displays information from Highest bid prices and lowest ask prices).
However stock in United Kingdom has a different finance meaning. It refers to a bond and is widely used in all kinds of security markets. Nevertheless shares remain the same if it is used in the issued stocks of a certain corporation.