 |
Tags: finance, day trading, things you should know about day trading
 If you’ve been to Las Vegas then you’ve seen those slot machines, so called one-armed bandits, greeting you the minute you step out of the airplane. You drop a few coins, pull the lever, and pray you get the right combination to get some winnings, or at least get your money back.
In seconds it is over, you get a cherry and you get your money back—you were lucky. All over Vegas, thousands of people just like you lost or gained thousands of dollars in their quest of getting rich quickly. The same can be said about the fast paced world of stock trading, especially in the realm of the day trading.
advertisement
If you have ever thought about gambling your money much like you did with the slots in Vegas, then there are things you should know about day trading that may help you in your decision. Day trading is the practice of buying and selling financial instruments within the same trading period.
This means that all positions are closed before the market’s end. The commonly traded financial instruments include, but are not limited to, stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures. Day traders, as those that participate in this endeavor are called, buy and sell these financial instruments in the hope that their holdings will continue to climb or fall in value for the seconds to minutes they own the said instruments thereby allowing for quick profits.
They usually buy on borrowed money in the hope that they get higher returns through the nature of the financial leverage but also risk financial losses in a short period of time. Thus, day trading can be either extremely profitable or extremely unprofitable, where one can generate either huge percentage returns or huge percentage losses.
It can be risky if you are; 1) playing a loser's game/system rather than a game that's at least winnable; 2) having poor financial discipline; 3) have inadequate risk capital, and; 4) have incompetent money management skills. Other things that you would need to know about day trading concerns the very nature of the business itself—if you are indeed planning to go into this line of work.
First, you need to be prepared to absorb a financial loss. Expect the first few months to be a financial loss and know that many players don’t even break into the money column even after they have been around a long time. Understand and remember this one very important point: only risk money that you can afford to lose, not the money you or your family need to live off of.
Second, in day trading you do not invest anything. Traders look for stocks that are either moving up or down in value, ride the momentum of that stock, and then get off before its value changes course. No stocks are kept overnight because of the extreme risk that the prices will dramatically change the next day resulting in huge losses.
Third, it is an extremely stressful job as it requires continuously watching the market for any and all minute changes in stock values—looking at dozens of ticker quotes and keeping tabs on price fluctuations to spot market trends. Fourth, as I said earlier day trading is based on buying instruments on margin—it requires using the leverage of the borrowed money to make any profits.
It is important to know the applicable margin rules and guidelines. Finally, there’s no easy way to make profits in day trading. If you’re going with a firm ask questions as to their win/loss percentage. Also check your local SEC office. Remember that while day trading is neither illegal nor is it unethical, it is highly risky and a day trader can experience calmness to full scale chaos within minutes—it just takes an understanding of the system.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
Share this article
You may reprint this article in its entirety on your web site, newsletter or ezine, providing you leave the About the author sections intact. You may not alter the contents.
|
|
