Overview
This lecture introduces the basics of day trading, including definitions, key strategies, risks, tax implications, and steps to get started as a day trader in Canada.
What is Day Trading?
- Day trading involves buying and selling securities within the same trading day.
- The goal is to profit from daily price fluctuations in assets like stocks, ETFs, and options.
- There is no required minimum investment, but brokerages may have their own requirements.
Day Traders vs. Active Traders
- Day traders close all positions before the market closes each day.
- Active traders trade frequently but may hold positions for several days.
- All day traders are active traders, but not all active traders are day traders.
Common Day Trading Strategies
- Price Action: Analyzes price charts to identify patterns and predict price direction.
- Scalping: Makes small, quick trades to profit from minor price changes; requires a fast exit strategy.
- Trend Following: Trades in the direction of market momentum, using trend and volume indicators.
- Counter-Trend Trading: Bets against current trends, expecting a reversal or stabilization.
- Fundamental Trading: Uses economic indicators and financial data to inform trading decisions.
- News Trading: Acts quickly on news events that may impact prices.
Risks and Requirements
- Day trading can be risky, requiring extensive daily research and significant time commitment.
- Each trade may incur commissions, and multiple trades can lead to high fees.
- There is potential for quick financial loss and significant stress.
- It's important to understand the assets being traded.
Tax Implications
- Day trading income is taxed as business income at your nominal rate.
- Losses and certain expenses are deductible against employment income.
- Currency conversions for gains/losses must be calculated in Canadian dollars.
- Keeping receipts is essential for tax deductions.
Legal Considerations
- Day trading is legal in Canada if your broker is regulated by IIROC (Investment Industry Regulatory Organization of Canada).
Steps to Get Started
- Choose a regulated online broker or discount brokerage.
- Open a cash or margin account.
- Learn about different trading strategies.
- Stay informed by following the news and market data.
- Create a list of securities to track.
- Use screeners to identify trading opportunities.
Key Terms & Definitions
- Day Trading — Buying and selling a security within the same day.
- Active Trading — Frequent trading focused on short-term opportunities, may hold positions overnight.
- Scalping — A strategy involving quick trades to capitalize on small price movements.
- IIROC — The regulatory body overseeing investment dealers in Canada.
Action Items / Next Steps
- Research different day trading strategies in detail.
- Open a trading account if you wish to begin.
- Consult a tax professional before starting.
- Stay updated with market trends and news.