The term Day Trader has been coined to describe individuals who trade stocks and other securities within a narrow window of time - typically a single day. Unfortunately, most definitions that are circulating today tend to emphasize the duration of the activity (a single day) rather than the nature of the activity itself (trading). This focus provides only half of the picture.

In order to fully understand the concept of Day Trading it is necessary to realize that there is a fundamental difference between "trading" stocks and "investing" in stocks. This distinction is extremely important - because it gets to the root of the controversy surrounding the Day Trading industry.

Trading by its nature requires speculation and speculation involves risk. Day Traders essentially place bets on the direction of stock price fluctuations in a handful of volatile stocks. Price volatility is much more important to the Day Trader than traditional investment fundamentals.

Investing, on the other hand, involves a careful assessment of market fundamentals. Stock selections are made on the basis of a company's current and long term market position and expected future earnings outlook. This more distant time horizon requires patience and a degree of diversification. More importantly, however, it allows investors to ignore short term volatility. Value is created as earnings grow over time.

How Does Day Trading Work?