If you’re a trader, you surely wouldn’t have passed up a chance to try your hand at day trading. While some people have burnt their fingers, there are others made fortunes from this risky strategy. Experts shrug off this form of trading as a waste of time in a zero sum game; but there are others who claim that day trading is much more profitable than short term trading. Let’s see why.
Day Trading As An Ideal Money Making Strategy
- The obvious advantage of day trading is the fact that you’ll have cash in your balance at the end of the day. This is especially useful in an unpredictable market where your investments in short term stocks could plunge overnight. You don’t have to lose sleep over investments that look shaky.
- You can be long or short according to the market situation. If you expect some bad news and anticipate the market to go down, you can always short market centric stocks and gain from their fall.
- As a day trader you have the advantage of leverage. This means you can borrow money from your broker to buy or sell stocks. You can get as much as ten times the actual amount needed to be allocated for a trade. Some brokers may offer more leverage; however, though beneficial, leverage may be a double edged sword and can result in heavy losses when the trade goes wrong.
- With real time online terminals and trading systems in place, day trading has just become easier. Most day trading decisions need to be taken at the nick of the moment. This is enabled now because individuals can access trader terminals and transact on their own without having to depend on a broker.
Day Trading – Mere Eyewash?
- In spite of its profit factor, day trading is considered a risky practice by most people. In margin trading, for example, you’re bound to settle the trades by the end of the day. This means, whether you’re in profit or loss, you have to close the trade by the close of day. It’s advised that only people who can afford to lose the money should carry on with day trading
- Day trading profits depend mostly on momentum. Most trades are completed within a few minutes. If such a trade goes against your position, your losses may be severe especially because of the leverage facility available.
- Only people who have the money and time to spare can indulge in day trading. You may have to keep monitoring your trade to ensure minimum loss and book profits at the right time.
- Since day traders have to do multiple transactions a day to make profit, they also have to pay more commission to their brokers. The commission often overrides profits if any and makes it a no-win situation.
Conclusion
Though it looks easy, without proper technical analysis and the help of stock charts, it’s difficult to make profits through day trading. Don’t blindly go by investment advice you get in forums and newspapers. Each person has a different day trading strategy to bring in profits. There are no specific secrets to day trading. It’s easy to be tempted by advertisements for day trading robots and people who claim to teach day trading secrets. The truth is, day trading is no easy money strategy. Take this up only if you can invest the time and money required.
