Many of us had once thought of making a quick dollar without trying hard. For sure, there are various ways to do that, both illegal and legal ones. But since we are into the trading industry, we are going to consider one of the popular methods to make money the fastest and discuss why it may be a dangerous game for traders. That is Day trading.
Many traders, especially beginners, choose it as the most profitable and quick way to hit jackpot. It’s become so mainstream activity among traders that brokerage companies design advanced trading platforms for day traders implementing such features as real-time streaming quotes, modern charting tools and provide with the ability to quickly enter and modify complex orders.
But what Day trading really is? Is Day trading worth it to try?
The key idea of Day trading is in its name, meaning that trading operations occur within one day.
When you watch price charts and focus on big moves — be it stocks, currencies or futures — you may think it’s pretty simple to make a profit. But it’s far from being an absolute truth. Well, Day trading naturally can make you rich, but only in case you take it seriously and know how to go about it.
Before we learn what is so alluring and yet risky in this kind of trading, here are some bullet points to keep in mind if you challenge to try such a game:
- Day trading is not just for killing time. Some people consider it as a full-time job;
- It requires constant scanning of market news and trusted financial websites;
- Before starting day trading you have to develop a well-thought strategy;
- You have to switch to emotionless mode.
So, what really attracts market players to follow such a path? Is Day trading for a living possible?
Let’s get into the topic.
What Makes Day Trading so Alluring?
The most heart-pounding things in DT are placing orders after orders during the day, carefully listening to every market move and finally — making fast money. You can enter and exit a trade within 5 to 15 minutes and when you see that you made a pile of bucks in minutes it gives you a super high adrenaline buzz.
But what else can make Day trading so captivating for many?
Even if considering DT as a full-time job, you may forget about going to the office in the morning, suffering from overcrowded buses or traffic jams, deadlines, wonky co-workers and picky bosses. You are responsible for your trades and performance by yourself. You are free to execute trades from your laptop, sitting in a fancy chair and sipping your tea. However, one should not forget about self-discipline that’s essential for trading success.
Probably this is the major advantage of DT over traditional trading since you are able to close your trade before the end of the day, erasing the risks associated with holding a stock overnight. So that your income is not affected by unexpected market moves (gaps), caused by political, economical, military news or simply rumors.
When the market becomes frantic, experienced day traders often use short-selling strategies to benefit from falling stock prices. The possibility to earn money in bad market conditions is a huge advantage for every skilled day trader.
You already know that for making intelligent and correct financial decisions traders apply for two types of analysis — technical and fundamental. If long-term traders are aimed to focus on how company stock value changes in the long run (fundamental analysis), day traders live in the present moment and that’s why they only worry about the stock price, volume, and volatility of the day. That’s why traders prefer to concentrate on technical analysis than on fundamental one.
So, besides quick money, traders fall for day trading because there’s no need to make long-term forecasts that saves time considerably. Plus, there’s no renewal fee.
Keeping track of open positions, a day trader can simply close the deal if he finds out some bad news.
However, Day trading is not that simple as you might have thought. Now let’s learn the pain points of the game.
Why is Day Trading Bad?
After learning about Day trading advantages you may think it may be a good opportunity to hit jackpot and improve your life quick as a wink. Well, 90% of newbie traders feel the same way. But one should accept quite an obvious fact that for every plus there’s a minus.
Some individuals who used to be Day traders recall it as a hell time since it cost them a lot of nerve, lost money and, actually, time.
The truth is, that if you made up your mind to try your skills in Day trading, you must have these skills.
First of all, you have to invest pretty much time testing strategies that would work favorably in any market conditions. Therefore, you need to be well-trained in finance and have endless patience to properly execute those strategies.
The reality is when you sit down day trading, prepare to go through:
The thing is, most people make their way as good traders, but only a small percentage manage to successfully Day trade. Naturally, humans are programmed to feel emotions and, therefore, it’s easy to crap out the winning strategy.
The best day traders are those with an analytical mindset and ability to shut down the emotions, those who have titanic patience and can accept large losses without losing self-confidence.
The following pieces of the article are indicating why Day trading is a risky game to play and maybe you will get the answer on why Day trading is bad:
Large losses possibility.
One should be prepared that depending on the financial decisions made through the day, the day trader could lose from hundreds to thousands of dollars. That’s why Day trading for beginners seems like a shipwreck of hope to become rich. As a result, many give up and forget the simple gaming rule that losses are a part of the game. Profit takes time.
In the beginning of the article, we mentioned that Day trading is timesaving because of intraday trades. However, it may be beneficial only for hardcore day traders that know how to do stuff. The fact is, you’d need thousands of hours learning and practicing before you get into a game. Moreover, lots of time has to spent in front of a screen to watch market hours in order to execute a trade at the right time.
Like any kind of trading, DT is very stressful and not only because of losses. Many people see trading as a gambling game, like if you watch a favorite sports team that you bet on. So Day trading may cause high blood pressure when waiting for a stock’s price to go up or down. Plus, it requires a quick reaction when making a decision of whether to buy or sell securities since time is intensively constraint.
Risk of overtrading.
Overtrading is usually driven by emotions that can undermine decisions and, therefore, lead to making too many risky trades or trading too large shares.
You should know that day traders often borrow money or buy stocks on a margin that can result in some risks. To increase returns day traders choose leveraged trading and in case of failure, it can lead to large losses and possibly debts. So think twice before kicking in the game.
Due to the fact that every trade goes with a certain commission, it can really cut your Day trading “salary”.
For example, a quick buy and sell transaction would cost you $20 which means if you had at least $100 it’d be 20% of the profit.
The typical picture of a day trader is an individual sitting in front of a computer and watching stock movements. Following the stock performance, day traders make a quick transaction. Since it is unknown how the stock will behave it’s essential to know market trends as well as be able to perform financial and investment analysis to avoid risks.
NYSE and NASD rules say that if you are a day trader you must have at least $25k on the account and can trade in margin accounts. And it’s not the only restriction. For more information, you should go to the Security and Exchanges Commission website.
Starting your day trading career can cost you a penny. The expenses cover Software and hardware, commissions, guides, etc. What is more, the expenses can grow as you grow in Day trading career.
Are There Any Other Ways to Make Profit from Day Trading?
If you are more into growing your own business than getting involved in Day trading stuff, developing your own DT platform may be a great option to raise the income. Due to DT popularity, you can easily attract thousands of clients helping them to carry out their day-trading work in a diligent and timely way.
What must-have features should the platform include? What are the costs and time frame of crafting such a platform? Fintatech has a powerful team of experienced specialists that will answer all your questions and help with the development process. Team has already developed 3 full-fledged for traders, trading institutes and brokerages.
Don’t be afraid to take a step further and drop us a line at firstname.lastname@example.org to receive more information, support, and a positive experience!
So the main question is still to be answered: Day trading good or bad? It is up to you to decide. Do you prefer to focus on DT advantages and challenge your skills on such a level? Or do you prefer to go on a traditional path after learning twists and turns (read “risks”)?
Anyway, if you made up your mind to try DT or create your own platform, the Fintatech team is here to shed some light on the topic and help you with the software development for such a popular kind of trading.