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What a Daylight Trade?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 11 November 2016
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    Conjecture Corporation
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Daylight trades are simply trading activity that involves the purchase and the sale of the same security within a single trading day. An investor may buy a given security in the morning, only to sell that same security in the afternoon. This type of short sale and cover activity is sometimes used to take advantage of a short-term upswing in the value of a given security that is not anticipated to last.

Sometimes referred to as a day trade, the daylight trade is one of the strategies utilized when an investor wants to get in, make a quick profit, and get out. Typically, the process involves identifying a security or securities that are expected to rise substantially in value during the course of the day. The investor will buy early in the day, before the price per share begins to take off. Throughout the course of the day, the investor will monitor the progress of the securities and hopefully identify the peak price that will post for the day.

At a point where the investor believes the security as reached its maximum price before beginning to descend again, he or she will initiate the sale portion of the daylight trade. The sale will go through sometime before the end of the same trading day in which the purchase was made. While the investor may have held onto the security for no more than a few hours, a profit is usually realized from the purchase and quick sale.

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The daylight trade is a common strategy for making a quick profit. The key task is identifying securities that are expected to bounce for a short time only. This bounce may be caused by something happening in the industry of the issuing corporation, or some other factor such as a natural disaster or a shift in political situations within a given country. Accurately anticipating both the event and the subsequent impact on the performance of the security is essential to making a profitable day trade.

Many brokers are open to conducting a daylight trade for a client. In fact, it is not unlikely that a broker may identify projected activity for a given security that indicates a day trade is in order and pass the information on to interested clients. The brokerage may also be utilized by the investor to put in place an order to execute the sale of the acquired security either at a specific time in the afternoon or when the price of the security reaches a certain point, whichever comes first. This added convenience can make the daylight trade a viable strategy even for investors who do not have time to monitor the trading activity during the course of the day.

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