On the surface, day trading looks like an exciting way to make a quick buck. If you wanted to try your hand at day trading without being prepared, you will quickly learn how difficult and risky it can be to generate profits. Starting out isn’t easy, but with dedication and knowledge, you might find success as a day trader.
What is day trading?
Day trading is often likened to gambling. Unlike investing, where you buy securities and earn a profit after an extended period of time, the goal of day trading is to profit from buying and selling securities within one day. Day traders spend their days focused on the market, buying securities such as stocks or currencies up at a low price, and then quickly selling them to gain a profit later in the day. The profits from many of these trades are slim; after making several successful trades, these smaller profits add up.
Know the rules.
While there isn’t an official day trading handbook, here are some guidelines that can make your foray into trading easier.
- Don’t trade with margin.
Borrowing from your brokerage wouldn’t be an issue if all your trades were successful. However, beginners should steer away from margin. Failed trades are bad enough, but those that are financed with margin will cost you even more. - Be prepared.
Every trade needs a game plan. Don’t be overly preoccupied with only one aspect of the trade; you need to have a selling price, time, and strategy in mind. - Know the best times to trade.
It’s best to avoid trading during the first 15 minutes that the market opens. Most of these trades are leftovers from the day before, carried out by traders who want to get securities off their hands. The first 15 to 20 minutes negatively affects the volatility of prices. - Trust your gut over random sources.
Anyone can make an official-looking email and claim to have the scoop on securities. Don’t take tips from random sources.
Know what you’re getting into.
If you’re looking to make a good amount of profit, you’ll have to treat day trading as a full-time job. Although you might enjoy being your own boss and working from home, you need to have discipline. Unlike a regular office job, you won’t have much time for vacation and you’ll work long days. Compared to investing, you’ll losing more of your profit to a short-term capital gains tax of at least 35%. You should also be prepared to pay commission fees to your broker.
To get started, you’ll need to find an online broker, day trading software, and have a good amount of capital. It’s recommended that you have $30,000 to $50,000 in your account before you start trading, but the actual account minimum depends on the broker you use.
Are you ready to start trading? Before you say yes, make sure you’re ready to take big risks. Don’t let the initial losses bring you down; the first few months are rough on beginner traders.
