When you buy and sell stocks and other securities on the same day, you participate in a practice known as "day trading." The theory behind day trading holds that investors encounter less risk because securities can't suffer significant losses overnight.
What are the Benefits of Day Trading?
Day traders take advantage of small but significant changes in the stock market throughout the day. They track the numbers meticulously and react quickly to blips that send up red flags.
Essentially, day trading allows investors to capitalize on short-term gains without any of the risks of long-term holdings. They might execute hundreds (or even thousands) of transactions in a day, but they close out all accounts by the end of business.
What are the Risks of Day Trading?
Day traders must possess excellent instincts and hardened reserves. They don't hold their positions long, so they don't worry about long-term gains. This excludes them from the benefits of riding a market over the long haul.
Additionally, inexperienced traders can fall victim to financial predators who promise big returns as brokers or advisers. Some day traders handle each transaction themselves, while others hire brokers. If you work with an intermediary, however, you must place all your trust in that individual or company.
Should You Try Day Trading?
The wisdom that governs long-term investment cannot apply to day trading. Therefore, investors who want to attempt day trading should recognize the difference and educate themselves before they take that leap.
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