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Day Trading The Extreme Sport Of Investing

Aug 17, 2007
The rewards are incredible for those that do it right, but for those who make enough mistakes it will take everything they have and still not be satisfied. Day trading is the practice of buying and selling securities and other financial options. These transactions are usually completed within the same day. Options that are typically traded include stocks, stock options and currencies. For the most part, day traders focus only on short term trading and can consist of several trades in a single day. Because of the high volume in trades day traders are given large discounts through trading brokerages.

Day trading gained momentum and notoriety during the "Tech Bubble" a period of bull market activity from 1997-2000. During this time even the most inexperienced and casual of traders were making large profits. Usually a day trader would have a certain amount of money and would basically borrow the rest on margin. During this time most day traders didn't even find it necessary to have a solid strategy. "Buy in the morning and sell in the afternoon" was the basic game plan for many. Reality hit the market in March of 2000. Since most the day traders at the time were inexperienced, they began to lose large sums of money quicker then it was gained. Most of the people relying on day trading as a source of income ended up completely broke and in some cases destitute.

Day trading is so risky that it has been likened to gambling. Compared to the number of day traders, very few are able to make consistent profits. The primary factor that contributes to such high risk is that the funds to trade are borrowed on margin. Due to this fact money management skills are a necessity. An experienced day trader knows that sometimes they can't afford to wait for the stock to rise again, if the market fails to meet the expectations, quick thinking is needed in order to avoid higher losses. A very small percentage of those who consider themselves day traders ever actually see a profit.

The US Securities and Exchange Commission (SEC) advises against day trading due to the fact that most individuals do not have the wealth or ability to not only make money, but to also survive the losses that most traders will face. Day Trading is not the same as investing, an inexperienced person may look at the processes and feel that it is just short term investing, but that is an incorrect view and is a leading cause of failure in day trading. Despite the promises of quick and "easy" money, day trading is a very stressful job. It requires dedication and doesn't allow for a moments rest when trading. In this field a few seconds can make all the difference. Borrowing money to buy stocks is not recommended. Persons truly interested in risky investment should do so under the guidance and assistance of trained professionals. The risk should be spread out so as to minimize losses.
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