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.

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