The Realities of Day Trading

Spread the love
negocios-21Day trading is when an investor purchases and sells investments rapidly throughout any given day. Instead of holding onto a stock for an extended period of time, these individuals are banking on the small fluctuations of a stock price en mass. While this has potential to be an incredibly lucrative process, the risks are exceedingly great. Many people have lost large amounts of money in a very short amount of time.
Takes More Money to Be Effective
Since day trading relies on the small fluctuations in the value of a company, it takes greater purchases of shares to make the experience worth your time. For example, buying a single share at $5 and then selling it at $5.10 a few minutes later wouldn’t even pay the fees from most stock brokers. Take that same stock and buy 10,000 shares of it, and the ten cent growth would accumulate $1,000. This means that day trading requires an incredible amount of money in order for the experience to be worthwhile.
Greater Risks to Investment
Buying into a stock for the sole purpose of unloading it in the near future is an incredible risk. Should the price of a company drop throughout the day, it’s possible to easily lose tens of thousands of dollars as a day trader. Because the risk is so great, some stock brokerage companies online will not allow you to commit to day trades unless you have at least $25,000 in the account.
Greater Amounts in Fees and Commissions
Most brokers will accept trades for a flat fee per transaction. If you’re committing several transactions per day, you’re blowing through your money rapidly. This might not be such a bad thing if your trades are going well. However, trading a bunch of falling stocks throughout the day could compound the financial ruin when you consider how much you spent with each transaction. You may also have to worry about commissions from brokers on top of all those fees.
Paying Close Attention to Accounts
Unlike trading over long-term, day trades require far more of your time. You need to be able to time trades at the most opportune moments or you could wind up losing more than you’d like. Unless you set stop limits, you need to be at the ready at all times. Unfortunately, stops can cost more per trade in brokerage fees. Luckily, many brokerage firms have smartphone apps that you can use while on the move.
Long-Term Holdings Are Often the Best
Holding onto a stock for a long period of time has an average yield higher than most savings accounts at the bank. Investment gurus, such as Chairman Wes Edens, have made much of their money by making smart and educated decisions over various kinds of markets. Diversifying your investments can reduce losses while giving you the best chance of financial success. While there is great potential for short-term gains in day trading, it’s safer and often more lucrative to hold onto a stock for longer than a few hours.
Day trading can be very lucrative, but it’s not for the faint of heart. It takes a great deal of investment, strategy and time. It’s not impossible to make money in this fashion, but there is more to it than just buying low and selling high. It can be an emotional roller coaster and could cause a great deal of stress.
Posted in: Money

Leave a comment »

Leave a Comment

Top of page