Day Trading vs Position Trading

Day trading and position trading are two contrasting approaches. The one you choose will depend on your style, the objectives you’ve set and the time you have available. Our guide to day trading vs position trading will help you understand the differences between the two as well as the pros and cons of each strategy.

Position trading vs day trading: What to expect from our guide

• What is day trading?
• What is position trading?
• Day trading vs position trading: The key differences
• Position trading vs day trading: The pros and cons
• The pros of day trading
• The cons of day trading
• The pros of position trading
• The cons of position trading
• Day trading vs position trading: Which is right for you? Learn more with Tradu

What is day trading?

Day trading refers to the opening and closing of positions within the same day or trading session. It is a short-term approach where positions are never held overnight. Instead, they are maintained for a maximum of a few hours, with some lasting only minutes or even seconds.

It's a strategy which is commonly used to trade forex, although it can be applied across other asset classes as well. The fundamental idea of day trading is to capitalise on small price movements throughout the day, opening and closing multiple positions with the aim of accruing lots of smaller profits. It’s a time-intensive process that requires almost constant monitoring of the markets during a session.

Find out more in our guide to day trading

What is position trading?

Position trading is a long-term strategy that mirrors traditional investing more closely. It involves the holding of positions for weeks, months and even years. That means the possibility of making a significant profit on an individual trade is greater, but so is the risk of incurring a substantial loss.

It's an approach that is implemented off the back of research and analysis gathered over an extended period. It typically lends itself to trading shares and commodities. This is because these asset classes tend to follow distinct trends and operate within narrower price ranges than other markets such as forex.

Find out more in our guide to position trading

Day trading vs position trading: The key differences

When comparing position trading vs day trading, it's important to understand the fundamental differences between them to help you decide which approach is going to be best suited to you:

Position trading vs day trading: The pros and cons

All strategies have their benefits and risks, so you need to adopt an approach where, for you, the advantages outweigh the disadvantages. When comparing day trading vs position trading, some concepts apply across both.

For example, you can trade with leverage. This gives you exposure to much larger positions while only putting up a small percentage of the required capital. While this can offer the opportunity to amplify your profits, it can also multiply your losses because your exposure is for the full value of the position, not just your deposit amount.

You can also use derivative products like contracts for difference (CFDs) when day trading or position trading. Rather than taking ownership of the underlying asset, you are merely speculating on its future performance. This means you can trade both bearish and bullish markets, with the chance to make a profit in either.

Below, we’ve outlined some of the pros and cons of both day trading and position trading to help you decide which might be the most suitable approach for you.

The pros of day trading

• No overnight fees: All positions are opened and closed within the same day and none are held open through to the next day. This means you avoid paying the fees some brokers charge for maintaining your positions overnight.
• No gapping: You can incur losses if an asset’s value shifts during the period between the market closing one day and re-opening the next. But because no positions are held overnight, this is not a concern when day trading.
• Lower risk of a significant loss: The short-term nature of day trading means you are less susceptible to major movements that could result in a substantial loss on any individual position.
• Thrill: Day trading offers the chance to execute multiple profitable trades in quick succession, which may suit traders who prefer to operate in a fast-paced, high-intensity environment.

The cons of day trading

• Transaction fees: When executing multiple trades throughout a day or a session, the transaction fees charged by your broker can soon start to add up. These will eat into your profit margin.
• Time-intensive: During an active session, day trading requires almost constant monitoring of trends and markets in order to identify opportunities. This places a great demand on your time.
• Fewer significant gains on a single trade: Although the short-term nature of positions means major losses are less likely, it also means significant profits on an individual trade are harder to come by.
• Stressful: The intensity and pressure of day trading can prove extremely taxing and may lead to fatigue and burnout.

The pros of position trading

• Less time-consuming: With positions left open for much longer periods, there is no need to check and monitor the markets with the same regularity as when day trading.
• Less stressful: Position trading is done at a much slower pace with significantly less intensity, which may suit traders who prefer to retain a calmer disposition.
• Fewer transaction fees: You may only execute a handful of trades over a year, which means incurring transaction charges in a much smaller volume.
• Significant returns possible: An asset’s value can fluctuate substantially over a long period, so position trading does offer the opportunity for potential profits.

The cons of position trading

• More capital needed: Holding positions for longer periods typically requires a greater commitment of capital – including to cover overnight fees.
• Capital tied up: Position trading also impacts your liquidity in that the capital you may need for other trades has already been committed to long-term positions.
• Slower returns: Although gains can be significant if your reading of the market proves correct, the nature of position trading means you have to wait longer for those substantial profits to be realised.
• Greater depth of analysis required: Position trading uses a combination of fundamental and technical analysis, and developing your understanding of both methods – and how they work in tandem – can take time.
• Risk Involved - While it offers the potential for long term profit, there is also the risk of amplified losses which might lead to irretrievable loss of capital.

Day trading vs position trading: Which is right for you? Learn more with Tradu

So, there are plenty of elements to consider when comparing day trading vs position trading. You need to take the time to weigh up all the potential risks and benefits and work out which strategy is right for you. You’ll need to take into account your level of knowledge, the amount of time you have available and the markets you wish to trade. Having factored in all of that information, you might find that one approach is more suitable than the other.

Our proprietary platform offers access to a wide range of asset classes while you’ll also benefit from our live charts and analytical tools to help you implement your strategy. It takes just a few minutes to open your account and you can check out our related guides to continue your trading education with Tradu.