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.

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.



comments powered by Disqus
Hot Definitions
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  2. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  3. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  4. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  5. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
  6. TIMP (acronym)

    'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
Trading Center