Day Trading

• Day trading refers to buying and selling an asset on the same trading day. This is usually done to avoid the possibility that an asset price will move significantly immediately when the next day's trading begins. Such an immediate movement could result as a response to news that broke while the market was closed for the night.
  
  While some day trading involves attempting to cash in on an overall price movement, one variant known as shaving involves holding stocks for a matter of seconds in an attempt to exploit the way offers from multiple sellers and buyers are routed through a single electronic system.
  
  

Swing Trading

• Swing trading aims to capitalize on short-term trends in which an asset price swings back and forth, rather than on long-term trends in which a stock of a well performing company should move up and that of a poorly performing company should move down. As a result, swing traders tend to hold on to stocks for a matter of days rather than months.
  
  Usually a swing trader is attempting to predict the pattern of the market "correcting itself" when a stock is overpriced or underpriced, which results in a sudden increase in demand or supply.
  
  

Differences

• The time issue is not the only difference between the two types of trading. Day trading is usually based on the logic of having a very small profit margin, with the significant money coming from dealing in a large quantity of the asset. Swing trading usually targets a more dramatic price movement, which means lower volume trading can result in the same profit (or loss if things go badly). The lengthier process of swing trading means it can also be used for shorting assets (a method that involves borrowing stocks temporarily and profiting if the price falls), which logistically is more difficult with day trading.
  
  

Consequences

• The Securities and Exchange Commission (SEC) has warned that day trading can be extremely risky, particularly when trading in high volumes. It also warns investors should be cautious about paying for guides and information about day trading that could be misleading.
  
  A person carrying out a lot of trades may be classed as a trader rather than investor by the IRS. This can be beneficial, because it increases the range of trading-related expenses that are tax-deductible, but it may lead to increased paperwork.