Day Trading: Advantages vs Disadvantages
Day trading is a form of stock market trading where the individual purchases shares and sells them within the same day. There are many factors to consider before proceeding for day trading. The primary objective of day trading is to maximize profit with the help of price fluctuations. No open positions are left at the end of the day, and therefore every day is a new beginning. While many consider this option full of risk, some also have a softer side towards this technique. If you are new to trading and want to know more about it, here are the pros and cons that you should have a look at.
- Make More Profit in a Short Span
Within a short span of time, you can make a huge amount of profit. However, you need to be precise with your decisions and execute the strategy appropriately. Moreover, you will also be able to have leverage, depending upon your broker. Leverage is the money the broker lends to you for purchase of stocks, a 3:1 leverage will allow you thrice the fund.
- No Overnight Risk Associated
Well, the most important benefit is that there is no overnight risk. You can avoid large fluctuations of a company that tends to happen over the night by applying day trading. There could be many reasons for large price fluctuations overnight. For example, the company might announce merger news, quarterly result announcement, etc. Long term investors can not pull out of this and they have to face losses, while day traders are able to protect their portfolio.
Another advantage is that day traders don’t have to deal with the stress of carrying the stocks for a long time. Keeping the stocks for a long time comes with stress that whether the stock will crash or will it go high. The day trading results are with you after the day ends so you know whether it has worked for you or not at the end of the day.
- Complete Freedom
One of the chief reasons why investors love day trading so much is they can take complete freedom to buy and sell stock anytime in the day. It is in the complete control of the investor to buy and sell stocks whenever he/she wants. Though, it won’t become a fulltime job for any investor as soon as they start with it but eventually when they keep going, it is more likely to become a good skill for them to earn high profits.
- There are Multiple Strategies Out There
One of the best parts of this investment strategy is there are multiple strategies to go with so it is a flexible option for you. It is harder to find flexibility in other investment options.
- Investors Often Lose More Than They Earn
People get tempted too early to start day trading in the ill desire of earning too much money. This makes them invest a large sum in the hope that they will earn high profits. But, many people often fail to understand day trading in the greedy hope to earn a high sum of money and this results in a small or big loss sometimes. They don’t understand the market, don’t research the stock properly and miscalculate the analysis which fails their deal and make losses.
Another thing is the need for a large sum of money to start day trading. You can’t start it with a small fund, you need to have more money than the minimum amount required to start it. For this, many people invest their hard-earned money, money with which they were going to fulfill their dreams and then it gets in vain as they don’t do proper analysis.
- Proper Research is Required
It is a tactic requiring proper research so newbie investors must keep that in mind and do proper analysis to take the call of buying and selling the stocks. You need to check the market trends of each stock, past performance, current performance by seeing the graphs, and take advice from the expert traders until you have enough experience to make strong decisions without associating any risk.
So, here were the advantages and disadvantages of day trading. Hope you got an idea of it. If you want to start it, check out the different day trading platforms and see what services they provide, what are the brokerage charges, does the platform meet the expectations of what you are looking for and select the one that you find the most suitable. Don’t wait, select the platform to start day trading as quickly as possible!