Can You Make Money from Day Trading?
In a financial market, when traders buy and sell assets within the same trading day, it is called a day trading. It means that profits are earned when long or short trades are executed by buying at a lower price and selling at a higher price. The profit is represented by the difference between the opening and closing positions. So, traders can make money in day trading by opening and closing multiple trades every day and they do not need to leave an open position for the next day.
Is day trading profitable? Can you make money from it? To get the answer, it is important to look at the risk and benefits of day trading.
Benefits of Day Trading
Day trading has many advantages, including:
- Simple Trading: It is easy to be a day trader. Especially novice traders that are new to trading can start with a small amount of money by signing up with a brokerage account. When it comes to brokers, IQ Option is a great option due to its low minimum deposit of USD 10 only and a low minimum investment of USD 1. Moreover, IQ Option offers a free demo account for a lifetime. The account comes with $10,000 of virtual funds. So, you can test trading strategies and make yourself familiar with the trading environment without the risks of losing real money. You may visit the broker website for more information about IQ Option and how it can help you in day trading.
- No Overnight Risk: As mentioned earlier, buying and selling take place within the same day in day trading, so, the traders do not have any overnight risk. It helps them to avoid large fluctuations in the stock price of a company due to various reasons such as quarterly earnings announcements, material news, or news of a merger. For instance, if there is a negative earnings announcement on a particular stock during post-market hours, it may cause the stock price to fall which affects the trader’s portfolio negatively. Day traders are protected from losses which is one of its major benefits.
- Flexible Trading: Traders do not need to trade for the entire day when the market is open. If the day’s performance is enough to make them satisfied, then they can take the rest of the day off. When you are a beginner in trading, you need to learn about the markets and find profitable trading strategies suitable for your trading style. It is possible to trade for a few hours in day trading. Moreover, day trading also offers the benefit of trading from anywhere across the world. You do not have to be confined in an office or a cubicle. With an internet connection, traders maintain a lifestyle of independence.
- Quick Money Making: With day trading, you can execute a profitable strategy consistently which can make your trading account grow substantially. Day traders are also given access to leverage. It means borrowing money from a brokerage company for purchasing company stocks or additional shares. For instance, if leverage of 4:1 is allowed by your brokerage accounts and you have $20,000 in your account, then you would be able to buy stock worth of $80,000. However, the stock can quickly fall, which makes trading on leverage dangerous. So, beginners should be careful and trade without using leverage.
Risks of Day Trading
Like benefits, there are also some risks in day trading that you need to know about:
- More Discipline Required: One thing that you must know is that a lot of discipline and focus is required in day trading. This is because, when compared to average investors, more trades are executed by day traders, when we consider the volume. If you are a day trader, then you need to monitor your trading plan constantly to make sure that the trades are aligned with the trading rules directly. It is not wise to jump in and out of a stock. If a trade does not align with the trading plan you follow, then it is better to not place the trade.
- Stressful Trading: Day trading is stressful for many reasons. One of the main reasons is the learning curve. It takes time to learn about the financial market and traders often get frustrated when they do not get immediate results. Moreover, during this process, losses may begin to reduce the trading capital. When day traders face too many losses, they are often tempted to change direction outside their trading plan. However, this is the time when you have to manage your emotion so your mistakes cannot affect your decision making in future trades.
From the points above, you can see that there are more benefits of day trading than risks. All you need is to be is careful and choose a safe broker like IQ Option where you can practise your trading strategies with the help of a demo account. Gradually, you become a consistent trader and know how to avoid risks and make money from day trading.