Introduction
Day trading or intraday is the process of buying or selling stocks on the same day with the aim of making capital gains on short-term price movements. It is different from investing as investing is focused on building wealth over a long period of time with careful portfolio construction. On the other hand, intraday trading is trading in the same way and making a profit out of desired price fluctuations. Currently, the demand for day trading is rising due to hopes for early profits in a short-term period. This article will focus on evaluating day trading pros and cons.
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Pros of Day Trading
Intraday is gaining high popularity due to its advantages of high gains in a short period of time. Let us discuss the key pros of day trading.
Potential for High Profits
One of the major advantages of intraday is the potential for high and quick profits. This is due to the benefit of minor price fluctuations within a single trade session with the attempt to make immediate returns. With efficient capital, one can make enough returns to match the wealth of a salaried employee.
Independence and Flexibility
Day trading allows traders to enter and exit positions at will showcasing the presence of high flexibility and independence. Therefore, through this trade enjoy the possibilities of high liquidity with strong independence in entering and exiting markets.
Immediate Results
Unlike investment, trading delivers immediate returns in a very short period of time. Instead of holding stock for years and waiting for compounding results intraday can lead to immediate profits in a single day. With appropriate tactics, an individual trader can easily produce high gains in bearish markets.
Learning and Skill Development
Successful trading requires various skills such as market knowledge, understanding of stock fundamentals and most importantly technical analysis. Therefore, an individual can enjoy the opportunity of skill development while engaging in day trading activities.
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Cons of Day Trading
The coin has two sides. Despite the major advantages day trading is prone to significant cons which are discussed below.
High Risk of Losses
The most obvious risk of engaging in intraday transactions is the possibility of high losses and loss of potential wealth of an individual. As they say, high returns are prone to high risk. With strong strategies and an understanding of the stock market engaging in day trading is nothing less than open gambling.
Stress and Emotional Strain
Huge losses impact the mental health of traders with high emotional strain and stress. Furthermore, day trading is known for its fast-paced nature which leads to high levels of stress and pressure due to the need for rapid decisions given the high volatility of the stock market and its dependence on external factors.
High Transaction Costs
Day trading is characterized by frequent buying and selling with the ultimate goal of making a profit from each transaction. However, charges such as brokerage fees, short-term capital gain tax and transaction costs tend to reduce the overall profit margins of traders who execute multiple trades in a single day.
Time-Consuming
Regardless of quick profit-generating capability day trading demands a significant amount of time for picking desirable trades. Traders need to carefully monitor potential trades during market hours to seek the best situation for buying or selling a stock at the right time.
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