Day trading vs. swing trading: How do they differ?
You’ve heard of day trading and swing trading. Heck, you’ve probably tried at least one of these trading styles at some point. But which is better? Let’s explore their differences and pros and cons to figure that out.
What is day trading?
Day trading is a market strategy that involves opening and closing multiple positions throughout the day. Day traders will spot trends and react to current events to take advantage of short-term movements, buying and selling financial instruments quickly.
These short-term price movements often lead to market volatility – ideal conditions for the day trader. For this reason, day traders tend to prefer market open and close times, as this is when prices tend to spike the most.
Liquidity is also an important factor for day traders, as they need to be able to enter and exit markets quickly to lock in profits or minimize losses. Forex is the most liquid market in the world, and pairs that are traded most frequently, like EUR/USD, USD/JPY, and GBP/USD, are the most liquid.
A day trader will want to keep transaction costs to a minimum because they open so many positions. This is one of the reasons why they rarely hold positions overnight – so they aren’t subject to overnight funding charges. However, with Nadex this is never an issue because traders holding positions after the market closes aren’t subject to overnight fees.
If you day trade, you’ll make more frequent gains and losses. However, you’re not looking to get rich with one big trade – rather, you’ll aim to make a profit with multiple trades of a smaller size.
While anyone can day trade, it can take hours of time and effort – you’re constantly monitoring your positions, news, trends, and technical indicators to judge when to enter or exit a market. For these reasons, day trading may be a more appropriate strategy for full-time traders.
We like to call Nadex the home of day trading – after all, the longest you can hold a position with us is one week, so it makes sense for day traders to use our platform.
What is swing trading?
Swing trading is a strategy that involves holding positions over days or weeks. It’s less about the minute-to-minute changes and more focused on capturing a portion of a longer trend.
Although they usually trade over a longer time frame than day traders, swing traders still rely on market volatility and liquidity to find opportunities for profit and to open and close positions quickly.
Swing trading involves opening fewer positions, but these have the potential for greater profits and losses. But, like day traders, swing traders aren’t looking to make a massive profit from just one trade.
Because swing traders open fewer positions, they tend to pay fewer transaction fees than day traders. However, swing traders will regularly hold positions overnight, which traditionally makes them subject to overnight funding charges. At Nadex, swing traders aren’t charged fees to hold their positions after market close.
Swing trading has a fairly low time commitment – you can get away with just an hour or two a day checking technical indicators and monitoring your open positions. In this way, it’s a lot more flexible than day trading.
Day trading vs. swing trading: the differences summed up
We’ve already covered the differences between day trading and swing trading, but here they are summed up:
|Day trading||Swing trading|
|Trade multiple times in a single day||Trade multiple times over days and weeks|
|Hold positions for minutes or hours||Hold positions for hours, days, or weeks|
|Close positions at the end of the day||Hold positions overnight|
|Open more positions with smaller gains and losses||Open fewer positions with greater gains and losses|
Is day trading or swing trading more profitable?
Due to the sheer number of trades, day trading has a greater potential for profit. But that doesn’t mean a day trader will always make more money than a swing trader would. Day traders must have sharp decision-making skills to realize a profit – opening or closing a trade in split seconds to maximize gains, or cap losses when the market moves against them.
Swing trading has the potential to see fewer but larger profits; the longer a position is open, the more likely the market will move further away from its opening price. If it moves in the direction the trader has predicted, they’ll make a profit. If not, they’ll make a loss.
The verdict on which trading style is more profitable? It depends on a range of factors, such as a trader’s trading experience and skill, the volatility of the market at any particular moment, how much time a trader is willing to dedicate to trading, and any major news events that could affect an underlying market suddenly.
Which is safer: day trading or swing trading?
Both day trading and swing trading come with inherent risks. Generally speaking, the greater the risk, the greater the potential reward. Day trading relies on much smaller price movements, so the risk of loss tends to be lower than in swing trading. However, when you’re making multiple trades in one day, numerous small profits or losses can quickly add up.
Swing traders, on the other hand, enter and exit the market over the course of longer trends, which opens up the opportunity for greater profits and losses.
Because there are risks in both styles of trading, how much risk of profit or loss you take on has a lot to do with your skill and experience as a trader, the underlying market’s movements, major events that could affect the price, and an effective risk management strategy.
When you trade with Nadex, you always know your potential profit and loss before placing your trade. So, using our platform, you could argue that one style isn’t necessarily riskier than the other.
How much money do you need to start day trading or swing trading?
We can’t speak for other platforms, but at Nadex, the minimum initial deposit is just $250, which you can use to trade from the get-go.
Open a live Nadex account to start trading.
Trading with Nadex
Nadex might be more suitable for day traders, but that doesn’t mean swing traders can’t get in on the action, too. If you hold a position for less than a week, you can still profit when the market moves in the direction you’ve predicted. However, you won’t be able to trade using binary options, knock-outs, or call spreads if you're sticking with your position longer than seven days.
Because both day traders and swing traders rely on high levels of liquidity and volatility (albeit to different degrees) to find trading opportunities, markets like forex and indices are ideal. Both of these markets can be traded on Nadex.
When you day trade with Nadex, you don’t need to worry about the pattern day trader (PDT) rule because you’re not using leverage to open a position. That means you don’t need to have more than $25,000 in your account at the end of the trading day to keep trading the next day.
To start trading with Nadex, follow these steps:
Create or log in to your trading account.
Decide if you want to trade binary options, knock-outs, or call spreads.
Open a position to buy or sell, depending on which way you think the market will move.
Monitor your position.
Close your position when you're ready, or wait for it to be closed automatically, depending on the product you're trading.
Not quite ready for a live account? No problem – open a demo account to practice first.
Day trading vs. swing trading: the pros and cons summed up
|Day trading pros||Day trading cons|
|Don't pay overnight funding charges with Nadex||Pay multiple transaction fees|
|Seize numerous opportunities in a volatile market||Dedicate a lot of time|
|Feel the thrill of fast-paced trading||Make small incremental profits|
|Trade without violating the PDT rule with Nadex||Possibly wipe out small wins with one big loss|
|Swing trading pros||Swing trading cons|
|Don't pay overnight funding charges with Nadex||Capture part of trends, may miss out on greater profits|
|Dedicate less time||Experience less excitement than day trading|
|Make greater profits on a single trade||Realize greater losses|
|Trade when the markets are closed||Trade with fewer volatility opportunities|
Open a Nadex account to start day trading or swing trading today!
Can you make a living off day trading?
To potentially make a living off day trading, it is important to have a solid trading strategy that incorporates analysis on reasonable returns to cover your living expenses. Keep in mind, you should have strong risk management and utilize multiple strategies that adjust for different market conditions.
Day trading can certainly be a career for many who have the discipline, tools, education, and keen understanding of their trading psychology and style. The best way to get started is with a free demo account to hone your skills and learn what products and markets best suit your day trading style.
How much do you need for day trading?
For most day traders in the US, the legal minimum balance required to day trade stocks is $25,000. This is known as the Pattern Day Trader (PDT) Rule. However, Nadex is exempt from the PDT Rule. The minimum deposit to open a live account is $250. Not ready for a live account? Try our free demo account.
Can you day trade more than three times a week?
Yes, you can day trade more than three times a week! A pattern day trader is a person who executes four or more trades over five business days and usually must follow the Pattern Day Trader (PDT) Rule. Nadex has no Pattern Day Trader Rule and offers thousands of contracts with durations from five minutes to a week. You can trade 23 hours a day, 5 days a week. Nadex is the home for day traders looking to capture short-term forex, stock indices, and commodity market volatility.
How do I become a day trader?
To become a day trader, you must put in the time to learn and practice trading the markets. Get started by reading a guide on day trading for beginners. Next, apply what you learned by practicing on a free demo account.
Nadex products are well-positioned for day trading. Binary options, knock-outs, and call spreads are available with various contract durations, giving you access to intraday opportunities with built-in risk. With our expert customer service team and learning center, Nadex can potentially help you reach your day trading goals at a pace that’s right for you.
Can day traders hold stocks overnight?
Day traders can hold stocks overnight, although this technically would not be considered a day trade. Nadex Binary Options and Knock-Outs have weekly contract durations on stock indices markets, so you are able to hold positions overnight. Trading hours on Nadex encompass what other exchanges call regular trading hours or the trading session — traditionally the time between the opening bell and the close — as well as after-hours trading.