Active Trading

AAA

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.

INVESTOPEDIA EXPLAINS '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. Late-Day Trading

    An unethical (if not illegal) practice of a hedge fund purchasing ...
  2. Currency Day Trading System

    A set of analyses that the forex day trader uses to determine ...
  3. Active Investing

    An investment strategy involving ongoing buying and selling actions ...
  4. Moving Average Convergence Divergence ...

    A trend-following momentum indicator that shows the relationship ...
  5. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  6. Indicator

    Indicators are statistics used to measure current conditions ...
RELATED FAQS
  1. How can I spot trading opportunities looking at year-to-date (YTD) performance?

    Trading opportunities on the long side can be spotted by looking at stocks with the worst year-to-date (YTD) performance, ... Read Full Answer >>
  2. How does Net Operating Profit After Tax give a clearer view of the operating efficiency ...

    Net operating profit after tax (NOPAT) gives a clearer view of the operating efficiency of a company. While NOPAT is a measure ... Read Full Answer >>
  3. Which is better: dollar cost averaging or value averaging?

    Historical comparisons seem to indicate that value averaging (VA) tends to outperform dollar cost averaging (DCA), offering ... Read Full Answer >>
  4. Why is the Nasdaq more volatile than the NYSE?

    The Nasdaq exchange does tend to regularly evidence more volatility than its major competitor, the New York Stock Exchange ... Read Full Answer >>
  5. How can I use Bollinger Bands® to spot options trading opportunities?

    Traders can use Bollinger Bands in a couple of different types of trading strategies. The most common strategy is using Bollinger ... Read Full Answer >>
  6. How do prepaid expenses affect liquidity ratio calculations?

    Prepaid expenses generally increase the value of liquidity ratios because a prepaid expense is categorized as a current asset ... Read Full Answer >>
Related Articles
  1. Technical Indicators

    A Primer On The MACD

    Learn to trade in the direction of short-term momentum.
  2. Forex Strategies

    Trading Forex Trends With MACD And Moving Averages

    Although based on short-term trading, keeping the long-term picture in mind will help investors trade with the trend.
  3. Chart Advisor

    Bearish MACD Crossovers With A Positive Twist

    These stocks are exhibiting bearish crossovers in their MACD readings, indicating potential short-term weakness, but also longer-term buying opportunities.
  4. Active Trading Fundamentals

    An Introduction To Day Trading

    This article will take an objective look at day trading, who does it and how it is done.
  5. Forex Education

    Trading The MACD Divergence

    Currency traders can use this method to avoid stop-order triggers before the real reversal.
  6. Active Trading

    Adjusting Day Trading Strategies For Different Market Conditions

    Being a successful trader means knowing when to play the market and how. Find out what strategies will have you on top.
  7. Trading Strategies

    Day Trading Strategies For Beginners

    From picking the right type of stock to setting stop-losses, learn how to trade wisely.
  8. Trading Strategies

    4 Common Active Trading Strategies

    Learn four of the most popular active trading strategies and why active trading isn't limited to professional traders anymore.
  9. Active Trading Fundamentals

    How Market Psychology Drives Technical Indicators

    The tenets of market psychology underlie each and every charting tool.
  10. Technical Indicators

    Using Technical Indicators To Develop Trading Strategies

    Unfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!