If you have heard of day trading before, you are likely aware that this has something to do with the stock market. In a general sense, it has to do with purchasing and selling financial instruments such as options, futures, currencies, and different types of stocks. The slightest movement in the value of these financial instruments can lead to thousands of dollars in profit or loss. By doing this properly, you could actually become a very proficient day trader that can make money from buying and selling these on a daily basis. Here is an overview of day trading so that you can get a general sense of how this works.
What Is Day Trading?
Day trading is simply speculation on the part of the investor when interacting in the securities exchange industry. As mentioned before, you are purchasing and selling financial instruments, sometimes separated only by minutes, as you are watching their positions throughout the day on the markets prior to their closing. This is a very popular way of trading because of the phenomenal returns that you can get in a very short period of time. The most proficient day traders can make tens of thousands of dollars over the course of several hours. Their goal is to purchase these financial instruments, hold them until the market moves, and then decide to sell them at the appropriate time.
Other Types Of Financial Instruments And Day Trading
Although stock options are one of the most popular financial instruments to trade, it is the Forex marketplace that tends to draw the most attention. That is because the value of currencies can shift significantly in just a few minutes, allowing you to make multiple trades throughout an entire day that could lead to substantial profits. Another very popular way to do day trading is to buy and sell futures contracts. Futures are related to the commodities industry. You could be purchasing futures contracts on corn, silver, coffee, or soybeans.
Unique Strategies That Can Lead To Profits
Most of the people that do day trading are going to have some type of software that is able to monitor for very specific signals. By monitoring the signals, the software can alert you to potentially profitable trades, allowing you to make the trades manually, or some may even execute the trades for you automatically. You could also do what is called scalping. This is where you are only holding a position for just minutes or even a few seconds. Other strategies include trend following, contrary in investing, and the use of artificial intelligence that is programmed into day trading software.
Is This A Safe Way To Invest Your Money?
For most people, day trading will likely be one of the most dangerous ways to invest your money simply because of how fast the markets are moving. If you don’t have the right software, or if you have not done this before and cannot make your phone call fast enough, you could end up losing thousands of dollars on a single trade. That’s why many of the software programs will provide you with current information and allow you to make trades that are not real. By practicing, you can become more adept at training in these different marketplaces, and discover which financial instrument seems to be best suited for fast and safe profits.
How To Find A Day Trading Broker
It is advantageous to work directly with a broker that is not only competent but will also have very low fees. Although you could make hundreds or thousands of dollars with each trade, you may only be paying them a few dollars for every trade that you make. As long as they are able to execute the trades for you, and do so seconds after you call, you will know that you have found one of the better day trading brokers.
If you would like to get into the exciting world of day trading, you now have a basic overview of what you can expect, and how profitable this can be. Always keep in mind that this can also be a very dangerous way to invest money, specifically if you are a novice that is not familiar with how these markets move. Once you have practiced for several weeks, you may want to start using actual money to make your trades. If you are confident enough, and if you are using aids such as artificial intelligence software, the odds will be in your favor of making good money doing day trading.
Thanks to a popular investment app that allows you to buy and sell stocks for free, many people out there think the prerequisite to day trading is a bank account with $25k. I told an investor I was a buy and hold type guy, and building and his response were: Oh yeah, you need $25k. There’s a whole lot more today trading than the ability to do so based on the amount of money you have.
In fact, without knowing much about trading stocks, you can get burned quite easily. Even the best of the traders out there lose money from time to time. You want to limit your losses as best you can, and you want to find those winners. Many people like to try and get in on IPOs, but look at what happened to LYFT.
LYFT took off on its first day of trading, and it has subsequently been on a downward trend. The company is yet to be profitable, just like Uber. Remember when getting in on IPOs that the big fish have already had their turn. They will buy ahead of you.
If you buy after them, you give them the ability to sell for a profit, leaving you holding the bag. If a company isn’t doing so well financially at the moment, well, the IPO is only a day trading opportunity for the big dogs who got in first.
Granted, I purchased a share of LYFT to buy and hold for my portfolio. I only purchased one share, and again, I’m a buy and hold investor. Yet I plan to day trade stocks in the future if the opportunity arises. You do indeed need a significant balance to participate. But it’s more about you being financially stable and ready to take on that type of a trading opportunity.
You need to have all the other financial aspects of your life in order first. That doesn’t mean, however, that the dollars in your day trading account are play money. You are always investing with real money, and knowing different day trading strategies can really help you in the long run.
Novice day traders tend to flock towards penny stocks. To be sure, there are experienced day traders that do the same thing. Yet you really want to do your research and get to know a company. A company’s stock often sells for pennies for a reason.
You also want to watch the hype. Many companies out there are hyped by day traders that are networked together, and the hype can make certain stocks appear to be great buying opportunities. They might skyrocket one day, but buying the hype is never a good idea.
You might, and I say might end up profiting off of a move like that, but most of the time, you are going to be late to the game and holding the bag. It’s better to learn the easy way than it is to learn the hard way.
Start out small. Try out just one move to get yourself going. You can place more trades as you get more experience under your belt. You will want to know which broker you want to use, and you want to be sure you have the best software and trading tools available.
Consider the fees that you are paying and what securities you have access to as well. Day trading can be expensive if you are placing trades, and those fees can eat into your profits. Imagine paying all of those fees and racking up the losses. Now you’re starting to see why you want to be fully prepared when you start day trading stocks.
You will get better at timing trades, so don’t bite off more than you can chew from the beginning. You will also want to be sure you network with some experienced day traders. Just don’t buy the hype. Also, focus on using limit orders so that you minimize losses.
Day trading is fun, and it can be very lucrative. There are people who do it for a living. Yet you can lose your shirt if you don’t know what you’re doing. Never assume you know all there is to know and don’t let your eyes get too big when you see an opportunity. Make smart moves, and make that money.