Once upon a time, stocks were not public for those to trade on the stock market. Instead, it was people who worked for trading houses and brokerages who were able to trade stocks and shares. However, thanks to the online world, people are able to invest on multiple platforms to help grow wealth. With the likes of Charles Schwab, Robinhood and Trading 212, anybody can trade stocks and shares while trying to grow their wealth.
There are many ways you can trade stocks and one of those methods is day trading. Day trading has no doubt been a great way for a stock trader to grow their wealth however, there have been some people who have lost millions of dollars for this method of trading. It is high risk but certainly high reward if you manage to get it right.
What Is Day Trading?
Day trading is when a stock investor puts money into a stock in the hope that it will increase on the same day. The aim is to profit from the stock market not long after the transaction. However, it isn’t just stocks that people will day trade. It is also futures, currencies and other assets.
Now, day trading sounds like betting but actually, a lot of technical analysis will be put into investment before the investment has been put in place.
Compared to long-term investors, day traders are not concerned about the future of a company as they are looking to buy and sell in a matter of 24 hours.
How Does It Work?
Day trading can be very risky however, the rewards are great. It involves buying and quickly selling when the investment has increased. Usually, it doesn’t need to be much of an increase. It can be small increases by +1% or even more by +10%, it all depends on the stock that you have invested in.
Once the trader has opened their investment, they will monitor the performance of the investment and how the market is also reacting to it. Traders will either sell their investment in seconds, minutes or even hours, depending on how it has performed.
There are a few things that are required for day trading. This includes high internet speeds, complex charting platforms, and real-time market data feeds. Additionally, day traders will usually specify in a sector as they have more knowledge about that industry, therefore, increasing their chances of successful with their day trades. Furthermore, they will follow strict measures to ensure they don’t lose too much money. Usually, they will set a sell order for no more than 1% or 2% of a loss.
Most traders work for large financial institutions and use highly advanced technology for their investments. However, day traders are essential to compete against professional traders and large companies because they can’t complete a transaction within minutes.
To be a successful trader, you need to focus and be able to make quick decisions. Usually, a trader must be capable of monitoring different data streams and understanding the market signals and, have precision timing.
What Is Attractive About Day Trading
The reason why people like day trading is one reason and one reason only and that is fast profits but is too good to be true for some people, leading to losing a significant amount of money. Additionally, they need to get three things right which is;
Keeping informed – Follow market headlines, economic reports and other factors that may impact the price of a stock.
Capable of making fast decisions – You should be able to make a decision quickly that is logical.
Employ leverage – Use borrowed money to help grow further profit however, also means a higher loss.
Rules and Regulations of Day Trading
There are specific rules and regulations for day traders that the Financial Industry Regulatory Authority and the Securities and Exchange Commissions have specified for day traders. You fit the day trading category if you make four or more trades within five business days. These trades also make up 6% of your activity in the same period. A day trader will also use a margin account.
What Is The $25,000 Rule?
Most day traders will have a lot of wealth built up that allows them to gain large profits. This is also known as the $25,000 rule. This means your trading account can’t be below $25,000. If your balance goes below this amount, you won’t be allowed to day trade until the balance increases back to this amount. If you do go below this and you break the rules, then the broker will freeze your account. You may be allowed to make cash-only trades however, there is also a risk that your account closes down.
The Leverage and Buying Power
Usually, a pattern day trader will have access to up to four times what they have in excess for the maintenance margin. For example, if you had a total of $30,000, then you have $5,000 in excess. This means you can trade up to $20,000 worth of stocks.
How Much Does The Day Trader Make On Average
Day trading has become a lot more popular in the last ten years due to being able to invest on online platforms. However, a lot of people see themselves making a lot of profit rather than the losses that can also occur. Additionally, most day traders struggle to make a profit, with around 15% of day traders being successful with this form of trading. This statistic alone shows that the average day trader is a lot more likely to lose money rather than gain money.
There have been studies that show those top traders are capable of making six or seven-figure annual incomes however, that is a very small percentage of day traders. Additionally, the majority of day traders earn less than the minimum wage when including the time invested and the returns that they receive.
Final Opinions: Is Day Trading A Sustainable Way To Build Wealth?
For the average person, day trading is a risk and can involve you losing a lot of money however, there are people who have made millions of dollars from it. If you understand the stock market, you can make a lot of profit but not necessarily from day trading. Furthermore, if you have the money to day trade, then you should invest it in much safer investments. Search for commercial property for sale in Hull can be a much safer investment because the value of the property can increase in value over time. It also helps bring in rental income, no matter where you have bought the commercial property.
Investing in long-term stocks can also be another and much safer way to invest your money furthermore, it takes up a lot less time and once the money is invested, you can leave that money in the account for months/ years.