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DAY TRADING

Day Trading as an Investment

WHAT IS DAY TRADING?​

 

Day trading is seen as a riskier approach to trading stocks, in comparison to other trading methods. The popular movie, “Wolf of Wall Street” is a reflection of what most people think about day trading.

 

Outsiders unfamiliar with the financial markets have a misconception of what day traders actually do. Day traders are mistakenly seen as finance professionals from top universities, frantically placing stock trades in a downtown New York corporate office, and living outrageously affluent lives. Day traders trade from home and invest based on personalized strategies.

 

WHAT ARE SOME OF THE ADVANTAGES AND DISADVANTAGES?​

 

Day trading is buying and selling stocks within a relatively short time, which is usually the same day. The positions often represent a small percentage of the trader’s portfolio, and the trader will execute large volumes of trades daily or weekly. The goal is to make a quick profit on small fluctuations on a specific trading pattern repeatedly.

 

Day trading can be lucrative if you are successful, however, it can be devastating to lose substantial amounts of money on a couple of bad trades. Day trading is often promoted as a “get rich approach” to the stock market. However, like all trading methods, you must learn the markets. You will not be successful overnight. Here are some of the advantages and disadvantages of day trading.

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ANNUAL ROI

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INVESTMENT PERIOD

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INVESTOR GROUP

ood day traders earn about 60,000 euros per year after taxes and regularly for many years. Depending on the account size, no enormous returns are necessary here. What is important here is discipline. Nevertheless, the range here from minus 100% to over 100% annual return.

If you define it very precisely, the investment period here is exactly one single day. For a day trader, every day is a new day where he tries to make profits through stock market trading.

Day traders take a longer term view and therefore it is more of a profession. A day trader does not invest, he exploits the volatility of the market. In doing so, the person usually does not care with which Underlying he makes his speculative profits.

 

UP TO ANNUAL R.O.I.

Disadvantages of 
Day Trading
VERY STRESSFUL
REQUIRES A LOT OF DISCIPLINE
ONE MAN SHOW vs. COMPANIES
RAPID LOSSES POSSIBLE
LEVERAGE
SPREAD, SWAP & FEES

One of the reasons why day trading is stressful is mainly because of the learning curve. Learning the financial markets takes time, and it can be frustrating when the results aren’t immediate. Also, losses during the process can cause your trading capital to shrink. Day traders may be tempted to deviate from their trading plan when losses begin to pile up. Managing your emotions is critical to a trader’s success. This means purposefully counteracting it by pausing and rethinking your priorities. The trader working day may well be over 12 hours.

As mentioned earlier, day trading requires more discipline and focus. The reason for this is that day traders execute more trades on a volume basis than an average investor. The day trader must constantly monitor his trading plan and ensure that his trades are directly in line with his personal trading rules. It is tempting to jump in and out of a stock that is generating interest, but if the trade does not match the trading plan, one should not place the trade. A trading diary is kept by many day traders, especially at the beginning of their trading career, to help them improve themselves.

In the age of algorithmic trading, traders are at a disadvantage compared to firms that participate in high-frequency trading. High frequency trading is a type of algorithmic trading where a large volume of shares are bought and sold at very high speeds, often in the millisecond range. Day traders have to compete against the machines, and we know that the machines always win. Here, insights into the order book can help to be positioned correctly.

If you have a margin account of less than $25,000, and you buy and sell four or more stocks on the same day in a five-day period you will be flagged as a “pattern day trader”. These securities can include stock options and short sales. To avoid the pattern day trading rule, I recommend setting up a second brokerage account, adding additional funds to surpass the $25,000 threshold, or holding a position overnight. Holding a position overnight and selling the security the next day does not count as a day trade. Additionally, being aware of the number of trades helps alleviate breaking this rule. The rule is in place to protect beginning traders from overtrading and reduce the risk of blowing up their account.

Whether you buy a property privately or as an investor, it usually involves a Leveraged trading, also known as margin trading, is both a day trader’s curse and blessing, allowing a trader to use only a fraction of the capital that would have to be raised without leverage. Essentially, margin trading amplifies trading results so that traders are able to make larger profits on successful trades. Many perceive the speed created by the leverage effect, i.e. relatively large fluctuations in profits and losses, as a disadvantage. At the same time, it is important to know that this leverage effect works in both directions. capital outlay and thus the bulk of the saver’s money is tied up in a real estate investment. Many clients can therefore no longer dispose of it for a long time or even for the rest of their lives.

The fees at some CFD brokers can be very intransparent. Each broker can change or adjust these fees at will. The normal fee that every CDF broker charges is the spread, which is the difference between the bid and ask price. As a result, when you open a position, you always start with a minus in the trade. If the speculation on the right direction works out, the position is in profit. 

In addition, there is the swap. This fee is an overnight surcharge that is charged by almost all CFD brokers. The swap, like the spread, varies from Underlying to Underlying. However, the swap can also be positive, which means the trader is credited money if he holds a position overnight. Unfortunately, some CFD brokers set the swap so high that it can destroy the entire trading account. 

Many brokers charge a triple swap. This is often placed on Wednesday. Justified is this, since trades are also held over the weekend, so over 3 nights, and are only calculated single. 

Another cost factor is fees on stock CFD’s. This is mostly calculated as a percentage fee based on the trading volume.

 
 
Advantages of 
Day Trading
HIGH PROFITS POSSIBLE QUICKLY
NO OVERNIGHT RISK
EASY ENTRY
FREE TIME MANAGEMENT
SHORT AND LONG POSITIONS
LEVERAGE

Discipline and consistent execution of a profitable strategy can significantly increase the trading account. Day traders mostly use access to brokers that offer margin trading. For example, if one maintains a trading account of $20,000 and the broker allows a leverage of 4:1, one could buy stocks worth up to $80,000. However, trading with leverage is dangerous because the shares can fall quickly. You can also make money without using leverage, which can be useful for some trading accounts.

Having no overnight risk benefits the trader from avoiding large fluctuations in a company’s stock price due to a variety of reasons. Some of the reason can be due to quarterly earnings announcements, news of a merger, and other material news. For example, during post market hours, a negative earnings announcement on Apple stock may cause the stock price to fall dramatically and negatively affect your portfolio. The day trader is protected from losses, whereas the long term investors incur losses. This is one of the major benefits of day trading.

In today’s internet world it is very easy to try yourself as a day trader. If you want to practice day trading, you need a laptop/ PC/ smartphone, internet access and a trading account with an online broker. In addition, of course, you need a certain amount of capital to execute your trades. The amount of capital depends on the risk affinity of the trader. The broker takes care of the management of the capital and the order execution. As with any self-employment, a business plan should be created to underpin the success in staggered goals.

You do not need to trade the entire day when the market is open. If you are completely satisfied with that day’s performance you can take the rest of the day off. Early on in your trading career, a trader needs to learn as much about the markets as they find a profitable trading strategy. Trading a few hours a day is possible for day trading.

A long trade is initiated by purchasing with the expectation to sell at a higher price in the future and realize a profit. 2 A short trade is initiated by selling, before buying, with the intent to repurchase the stock at a lower price and realize a profit.

As discussed in the downside, leverage can have an enormous and rapid impact on the trader’s account balance. It goes without saying that one should use hedging mechanisms here, such as stop loss or take profit, to minimize losses and maximize profits. The standard leverage in the EU is 30 and decreases depending on the Underlying. Outside the EU, 4000 leverage can be used. Here the laws of the exchange regulating institutions are decisive. In some cases it is also possible to use accounts for professional traders. For this, certain criteria must be met, then it is possible to receive a leverage of 1:200.

 
A personal note

Day trading has already lured many and even made them addicted. The fast money lures around every corner, numerous profit-promising advertising does the rest. Yes, it is true, with day trading you can make a big profit within a short time. There are also a few traders who earn their living with this.

 

However, this requires a lot of expertise, a good strategy, money management, self-control and experience. Strategies and tools are a dime a dozen, so we won’t go into them here.

 

One of the most important points: only work with capital that you can lose, especially at the beginning.

 
LINKS, PARTNER & PRODUCTS

In the following section, we would like to introduce partners, products and links to providers with whom we or trusted people have had good experiences and who offer sometimes unusual solutions. 

PLEASE NOTE:

From some of the companies listed here we receive a commission. AF-Intermediary is not allowed to give investment advice. All actions are your personal responsibility.

TRIO MARKETS

an boutique broker, who only works with Liquid-Provider

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