Before we start comparing the terms day trading and night trading, it is important to understand the meaning of them individually.
Let us start with the question:
What is Day Trading?
Day Trading is a process, which involves making a position in the stock markets with a view of clearing that position before the day ends. A day trader basically buys stocks many times a day looking for fractional raises in the prices but, they close all their positions by the end of the day. The purpose of a day trader is to get profits even on slightest movements within one trading day.
A day trader is different from the investors as a day trader holds the position for a short period of time and never overnight.
Day trading is widely misunderstood by many people. Real day traders do not hold their stock positions beyond the one trading day, and definitely not overnight.
Day trading is the safest way to do trading as you are not exposed to the expected losses that can occur after the stock market closes.
Advantages of day trading
- Zero Overnight Risk: As the traders sell their positions before the market closes there is no chance that the morning news and changes in market will affect the trade.
- Increased Leverage: the profits and investments of day traders are high because of less margin requirements.
- Profit in any market direction: Day trading can lock their profits in a declining market and thus, gain more profits.Now that you understand the concept of day trading, let us move to night trading.
What is Night Trading?
Night Trading is a term used to describe the process of trading at the night time between 9pm and 8am. This is the type of trading in which the investors trade after the market closes, at the end of the trading day, because the foreign markets open when the local market closes.
When a trader purchases stocks he is taking up a position. In overnight trading, the traders make positions that are not liquidated and are continuing trades after the closing of the trading day.
Comparison between day trading and night trading
- Day trading is safer than night trading because in day trading the trader closes the trade before the market closes. Therefore if there are any fluctuations in the foreign market they will not affect the trade. While night trading is very risky as in night the foreign market opens and the news can affect the trades. Night traders cannot control the risks involved in trades.
- In day trading the traders immediately close the position thereby ensuring minimum losses and maximum profits. Whereas in night trading the trader is not able to close his/her positions and has to hold it until the market reopens.
- In day trading the market is open and the traders have an opportunity to lessen the risks by the use of stop losses. Stop losses are instructions given to the broker to fix a position if the losses reach a certain point. This helps in limiting the risks. However, this option is not available in light trading.
- In light trading the trader may encounter some failures or delays in getting the order paced or executed. Whereas there are very less chances of failure in computer services at day time as the service providers are still working.
- There are greater price fluctuations in night trading as compared to day trading.
To conclude, those who have the hearts to take risks can go for overnight trading. However, it would be better for night traders to go for long-term investments instead.Read More