by Ian Harvey
When becoming involved in day trading, it is important to have a realistic understanding of what the potential benefits are, and how to make sure that you are able to make the most of these benefits.
While day trading offers the potential for enormous profits, most successful day traders aim for many small profits within each trading session. They understand that occasionally there will be big movements in price that will benefit them, but they do not expect most trades to play out this way. As a trader builds his or her skills and capital, they are able to compound the profit they are making, and to trade larger amounts, leading to a sustainable income.
Another benefit of day trading is that you can do it from anywhere as long as you have a computer and an internet connection. This provides a great amount of flexibility and independence, as you can make money without actually being employed in the traditional fashion. Many day traders are self-employed and can have a flexible working schedule, take time off whenever needed, and work at their own pace, unlike someone on the corporate treadmill.
Day trading is exciting and fast-paced. The trader can be in and out of a trade within a matter of 5 to 15 minutes. When successful, seeing that hundreds of dollars have been made in a matter of minutes can provide a rush like no other. It is important, however, to remember that there will always be losses, and a successful day trader must keep a level head.
The fact that no formal education is required to become a day trader may be seen as a benefit by many as completing university degrees involves a great deal of time and expense. This being said, it is highly recommended that you educate yourself as thoroughly as possible about all aspects of day trading to assist you in achieving the greatest possible success.
Tax benefits are also possible – because you are self-employed as a day trader and can write off certain expenses for tax purposes, which cannot be claimed by an employed individual.
Various forms of leverage are available to the day trader:
1. Your capital can be used many times over in the time that other traders are holding a position.
2. Trading on margin, which is basically borrowed capital, is a possibility for day traders, which can increase your buying power greatly.
3. Risk is reduced as all positions are closed within the trading day. This means that money is not exposed to major unexpected moves caused by surprise economic, political, or military news while the market is closed and you’re sleeping.
4. Profits can be made when the market is trading in either direction – which does not apply to long-term investors who hold their stocks for long duration to make profit from a bull- run. Day traders can do short selling/option trading with puts to make profit from falling stocks.
In conclusion, the possibility of becoming extremely wealthy in a short time is what attracts people to day trading – and it is quite possible for you to earn serious money, provided that you can afford to take the risk, understand the inner workings of the marketplace and have a well thought out strategy.