Day traders may either be institutional or retail traders. Those who buy and sell securities for accounts they manage for a certain institution are institutional traders, while those who buy or sell securities for personal accounts are retail traders. Day traders buy stock, commodities, and other securities, then hold these for a few minutes or hours before selling them off again.
Check on the key advantages that make retail day trading attractive to many:
1. Presents Quick Compounding of Gains
The attractiveness of daytrading to a lot of people is rooted in the belief that it allows you to make money fast. It is a fact that day trading will enable you to earn a serious income within a short span of time, that is, if you are an educated and knowledgeable day trader. There is no exact amount to answer the question of how much money a day trader makes in a day. But the idea is to gain profit from the market’s short-term price fluctuations.
The technique to maximize gains and minimize losses in day trading is the “1-percent risk strategy,” wherein for each trade you risk no more than 1 percent of your total portfolio size. Managing your risk requires discipline, but this strategy will allow you to limit losses to 1 percent and notch up your gain at 1.5 percent.
2. Helps Avoid Overnight Fluctuations
In day trading, a trade is opened and closed on the same day. Once it closes for the day, the market can fluctuate from 5 to 10 percent overnight. For example, British pound fluctuations could be affected by the Brexit drama and could happen any time of the day or night. There may be a chance that, if you do not constantly watch it, your highly liquid stock which closed at a high will open on the next day at a really low level. Day trading removes this possible disaster of wiping out a week’s worth of profits overnight. Because you were able to close your trades for the day, your worries will not follow you each time you go to sleep.
3. Offers a Home-Based Business Opportunity
Day trading requires from you a time commitment of at least 3 hours daily. But if you plan to dedicate at least 8 hours each day, making it like a full-time job, then you can consider turning day trading into a home-based business. Like other home-based work, you will have to invest in a desktop or laptop computer and a reliable internet connection.
Having a home-based day trading business will also provide the convenience you need if you are venturing into global markets. Depending on where you are in the world, the trading time of the global market may be different from your time zone, which would mean you have to be active in the middle of the night or the wee hours of the morning. It will be more convenient for you to be able to work within the comfort of your home during those odd hours.
4. Develops Adaptability
As a day trader, you make profits by capitalizing on the small price fluctuations of highly liquid stocks or indexes. This practice makes you adaptable to all types of market conditions, especially highly volatile situations. Adaptability gives you an edge over long-term investors. So if you have the stomach to day trade, then you can become an individual or professional day trader.
5. Provides Learning Opportunities
Naturally, high volatility means higher risks. You have to be able to test and learn a variety of trading patterns and strategies within a short span of time to address these high risks. In this manner, you will acquire in-depth knowledge of which particular stocks you will trade, when to trade, and when to back out of the trade.
If you are a full-time day trader working from home, you should use this ample time on developing a solid trading plan and implementing this plan. Applying your learnings and dedicating your full time and attention to the in-depth analysis of buying and selling certain stocks on a daily basis is a sure way to achieve consistent income within a year of starting as a day trader.
Day trading has its share of advantages, and it is easy to get started, though it is not for everybody. You have to find out if being a day trader suits you. Before getting into day trading, invest in educating yourself so that you will be able to be thorough in trading strategies, technical analysis, and quick decision-making. These skills, paired with the advantages you can get out of day trading, will help ensure that you are not throwing away the hard-earned money you are trading.