Day trading has never been more popular, even given a boost during the Covid pandemic when many investors seemed to have time on their hands. Often considered a relatively modern concept, day trading has been around for many years. However, perhaps the introduction of electronic trading services has brought it to the forefront in recent times.


We will now look at the history of day trading, developments, advancements and the many challenges the industry and investors face.


Early days of the stock market


While we often focus on the New York Stock Exchange as the home of day traders, the Philadelphia Stock Exchange was the first official US securities exchange, formed in 1790. Still active today, the exchange now focuses on equity, currency and index options, having taken a step back from the original stock trading operations. However, markets such as London have cemented their position as influential exchanges, prompting a significant increase in the number of short-term traders.


In the early days, and even up to the 1980s, access to London market data and trading opportunities was limited to a small group of investors. However, the introduction of electronic trading, competition among stock exchanges and regulations, which gave investors more protection, have since revolutionised the investment world. 


Advancements in technology


Even if general trading, or day trading, opportunities had been extended before the 1980s, this would have been tricky withaccess to real-time data just a pipe dream. Short-term investors away from the trading arena were, in effect, dealing blind on many occasions. In a best-case scenario, the information received would have been out of date, and prices likely to have moved already.


As we approached the 1980s, new trading and settlement systems emerged, and access to real-time data became a reality. This is when the London Stock Exchange stepped forward and began challenging US dominance. 


While many people frown on day trading, they are missing one of the main advantages, a massive increase in liquidity. This, in turn, attracts large institutions, knowing they can deal in size, both buying and selling and are unlikely to be trapped in trading positions.


Rise of day trading and its challenges


Day trading, and any short-term trading, comes with a degree of risk and potentially significant volatility. As with any investment activity, the headlines always focus on the potential for huge profits while ignoring the downside. For many, short-term trading is focused on trends and oversold/overbought positions, but there is still a lot of research required. This is by no means easy money!


Regulation and professionalisation


As tends to be the case, the SEC was one of the first regulatory bodies to step forward and introduce rules and regulations for day trading. In what was effectively a double-edged sword, there was a need to protect market integrity while offering a degree of protection to traders. As a result, we effectively saw the professionalisation of the industry, a greater understanding of trends, and access to research was also enhanced. For many, day trading became a "job" instead of a hobby.


Once the SEC introduced regulations, other regulatory bodies followed suit, and we saw a global increase in the number of day traders. As touched on above, this has had a monumental impact on market liquidity to the benefit of all.


The dot-com bubble and its impact


In the heady days of the 1980s and the 1990s, and the tech bubble, making money as a day trader (at least from the outside looking in) looked easy. This attracted many investors who were, to put it politely, novice traders, perhaps unaware of the potential downside. As a result, many tech share prices continued to rise on speculation of profit years down the line. However, these companies needed continuous funding to continue in what many would describe as a "jam tomorrow" scenario.


When the tech bubble finally burst, as obvious as it was looking back in hindsight, many day traders were decimated. Even those who had made significant profits in the early years had plough their money back into the market. When the end came, it was brutal!


Day trading today


While technology shares tend to be a popular target for day traders, bearing in mind their volatility and unpredictability, this concept has now spread across the market. We have seen more rules and regulations introduced and greater accessibility to trading systems and real-time information in what many would describe as a more level playing field compared to the early days. While there are many different trends, concepts and ideas for day trading, the bottom line is simple, minimise your losses and maximise your gains.

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