Active Trading

DEFINITION of 'Active Trading'

The buying and selling of securities with the intention of holding the securities for a short duration, typically for no more than one day. Active trading as an investment strategy seeks to take advantage of short-term movements in price, and often focuses on financial instruments in higher demand, such as stocks, currencies, options, and derivatives. Active trading is considered one of the most speculative trading strategies.

BREAKING DOWN 'Active Trading'

Active trading has increased in popularity as the availability of reliable, high-speed Internet connections has grown. Sophisticated computer programs have made making rapid trades easier to execute, and has provided investors with more tools to analyze trends across a broader array of financial instruments. Since active trading involves placing large numbers of buy and sell orders, investors following this strategy often seek brokerages and trading platforms with low or no brokerage fees.

Because security prices are constantly moving up and down, active trading often requires investors to forgo in-depth analysis. Instead the investor may focus on patterns, moving averages, break points and price momentum to determine what the likelihood of an upward or downward movement in price will be.

Active trading is considered speculative in nature as it does entail detailed analysis of a security’s long-term prospects. Due to the high volume of trades and fast-paced environment, investors who are unfamiliar with financial markets or are inexperienced with trading systems may lose money very quickly. Successful active traders must set limits and rules, and be able to keep the emotions associated with price movements separate from day trading strategy.

RELATED TERMS
  1. Active Stocks

    Listed shares on an exchange that are heavily traded. Active ...
  2. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  3. Average Daily Trading Volume - ...

    The average amount of individual securities traded in a day or ...
  4. Opening Price

    The price at which a security first trades upon the opening of ...
  5. Day Trader

    A investor who attempts to profit by making rapid trades intraday. ...
  6. Activity Cost Driver

    A factor that influences or contributes to the expense of certain ...
Related Articles
  1. Trading

    4 Common Active Trading Strategies

    Active trading entails buying and selling securities with the intent of profiting from short-term price movements.
  2. Markets

    Top Day Trading Instruments

    Day trading is an intense and often appealing activity. Investopedia provides the list of top financial instruments for day trading.
  3. Investing

    Introduction - Day Traders

    In this tutorial, we will examine the very short-term trading style known as day trading. In particular, we will show how the trader can create a winning combination by using particular strategies ...
  4. Trading

    Active and Passive Traders

    The difference between active and passive trading is like the difference between the actions of one individual versus the actions of a group as a whole; an alternative way of thinking about active ...
  5. Managing Wealth

    What's a Brokerage Account?

    A brokerage account is a contractual arrangement between an investor and a licensed securities broker or brokerage.
  6. Trading

    Technical Analysis: The Basic Assumptions

    By Cory Janssen, Chad Langager and Casey MurphyWhat Is Technical Analysis? Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such ...
  7. Managing Wealth

    Use Price Action Trading Strategy for Results

    Bored by the fixed rules of technical and fundamental analysis? Price action trading allows you to customize your own trading strategy.
  8. Trading

    The Pros And Cons Of Automated Trading Systems

    Automated trading systems minimize emotions, allow for faster order entry, lead to greater consistency and resolve pilot-error problems.
  9. Trading

    How To Choose Stocks For Day Trading

    Discover some of the contributing factors in determining what stocks are best for day trading.
  10. Trading

    Day Trading Strategies for Beginners

    Interested in day trading? From picking the right type of stock to setting stop-losses, here's a tutorial on how to trade wisely.
RELATED FAQS
  1. Does the SEC day trading rule apply to cash accounts?

    I want to open a cash account of $2,000 dollars to day trade! I understand that without a margin ... Read Answer >>
  2. What are the characteristics of a marketable security?

    Find out what it takes for a financial asset to be considered a marketable security, including its liquidity, intent of use ... Read Answer >>
  3. Can you short sell stocks that are trading below $5? My broker says that I can't.

    Short selling can be very risky for both the investor and the broker. Brokers will often tell investors that only stocks ... Read Answer >>
  4. What is the best time of the day to trade?

    Unlike traditional investing, trading, or day trading, has a very short-term focus. Analysis may be broken down to days, ... Read Answer >>
  5. How can I profit from a fall in stock prices of companies in the financial services ...

    Learn about the different methods successful investors use to profit by trading in the financial services sector, even when ... Read Answer >>
  6. How can a company trade more shares in one day than there are shares outstanding? ...

    The number of shares traded in a single day can be greater than the number of a company's outstanding shares, but this is ... Read Answer >>
Hot Definitions
  1. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  2. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  3. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  4. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  5. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  6. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
Trading Center