If your image of a day trader is of a person sitting at the beach, lazily perusing the daily stock charts, picking stocks that "look good," pressing a few buttons on the laptop, then going out surfing for the rest of the day, you might want to think again. Day trading takes considerable knowledge, digging into the charts, and panicking over choices made. Day traders rapidly buy and sell stocks depending on the immediate stance of the market, in hopes the stock they own will continue climbing for the minutes or hours they invest in them. Let's take a look at why day trading can hold such a risk, as well as a couple ways to avoid those risks.
Is your Capital at Risk?
Day traders usually buy on borrowed money, which could be the beginning of the risk. Because the trades are happening with high speed and intensity, the traders usually bank on the profits that can come from leveraging large amounts of money to buy stocks. Since there is always an equal and opposite reaction, day traders must also understand that with borrowed money and high action stocks, there comes the risk of losing on the same stocks.
While day trading is not illegal, most individual investors do not have the wealth on hand to make money by day trading. Individuals often do not have the ability to sustain the possibly devastating losses that the volatile market can dish out. That being said, day traders should be prepared to suffer severe financial losses at any point in time. This does not mean that losses will always happen, or be consistent, but when they do, there are usually large amounts initially invested, which makes the outcome equally as large.
Can you Invest Time?
By definition, day traders do not invest money. Investing requires close watch over an extended period of time and putting money in for the long haul. Since day traders buy and sell, typically within the hour, there is no actual investing in the stocks. Day traders look to ride the current wave and sell at the highest point possible. Because of this, true day traders do not own any stocks overnight because the price fluctuation from day to day could be extreme.
Day traders must spend many hours in front of their computers in order to break even. There has to be a constant watch of ticker data and price fluctuations in order to spot market trends. This requires a great deal of concentration and a high-powered computer to be able to keep up with the flow of data in real time. This investment in the business of day trading makes it difficult to breakeven at the end of the day. Day traders must be constantly aware of the margins they need to make by close of business.
Evaluating the Risks
If high rewards and fast paced work excite you, then day trading might be for you. Just remember that you need to be able to evaluate the risks before jumping in. Along with the high rewards come extreme risks and many day traders end up burning themselves out each day. Trying to maintain constant concentration and worrying overnight hoping to make up loses the next day can cause a great deal of stress even for the most educated stock trader.
Day trading is not a steady or even comfortable business. There are often a few small hills but even more deep valleys associated with day trading. If you are interested in day trading, minimize the risks by using your own money. Be sure to take breaks so you are not burned out by the end of each day. It is also important to know when you are in too deep. Be ready to get yourself out before the situation becomes worse.
You are supposed to be enjoying your time in the stock trading world. Do your homework, ask yourself some hard questions, then decide if day trading is for you.
Is your Capital at Risk?
Day traders usually buy on borrowed money, which could be the beginning of the risk. Because the trades are happening with high speed and intensity, the traders usually bank on the profits that can come from leveraging large amounts of money to buy stocks. Since there is always an equal and opposite reaction, day traders must also understand that with borrowed money and high action stocks, there comes the risk of losing on the same stocks.
While day trading is not illegal, most individual investors do not have the wealth on hand to make money by day trading. Individuals often do not have the ability to sustain the possibly devastating losses that the volatile market can dish out. That being said, day traders should be prepared to suffer severe financial losses at any point in time. This does not mean that losses will always happen, or be consistent, but when they do, there are usually large amounts initially invested, which makes the outcome equally as large.
Can you Invest Time?
By definition, day traders do not invest money. Investing requires close watch over an extended period of time and putting money in for the long haul. Since day traders buy and sell, typically within the hour, there is no actual investing in the stocks. Day traders look to ride the current wave and sell at the highest point possible. Because of this, true day traders do not own any stocks overnight because the price fluctuation from day to day could be extreme.
Day traders must spend many hours in front of their computers in order to break even. There has to be a constant watch of ticker data and price fluctuations in order to spot market trends. This requires a great deal of concentration and a high-powered computer to be able to keep up with the flow of data in real time. This investment in the business of day trading makes it difficult to breakeven at the end of the day. Day traders must be constantly aware of the margins they need to make by close of business.
Evaluating the Risks
If high rewards and fast paced work excite you, then day trading might be for you. Just remember that you need to be able to evaluate the risks before jumping in. Along with the high rewards come extreme risks and many day traders end up burning themselves out each day. Trying to maintain constant concentration and worrying overnight hoping to make up loses the next day can cause a great deal of stress even for the most educated stock trader.
Day trading is not a steady or even comfortable business. There are often a few small hills but even more deep valleys associated with day trading. If you are interested in day trading, minimize the risks by using your own money. Be sure to take breaks so you are not burned out by the end of each day. It is also important to know when you are in too deep. Be ready to get yourself out before the situation becomes worse.
You are supposed to be enjoying your time in the stock trading world. Do your homework, ask yourself some hard questions, then decide if day trading is for you.