Day-Trader vs Long Term Investor Holder? Day Trading Risks of Investing Alinea Invest: Social Investing App for GenZ

Volatility in any direction lets traders take advantage of price movements, while trade volume provides the opportunity to get in and out of positions fast. Day trading requires a deep understanding of the markets, financial products, and strategies and involves meticulous market and news monitoring. Short-term traders typically set their sight on immediate returns, and often choose stocks that trade with higher volatility. When stocks quickly rise and fall in value, traders try to jump in and “time the market” to buy or sell at an opportune time to profit from bursts of volatility. Most of the time, there is no need to choose only one market approach.

She has disposable income to open an online brokerage account. You might be able to make 0.5% to 3% (on the high end) per day. That may not sound like much, but it could equate to between 10% and 60% per profit month. Try to buy stock in larger amounts less often to decrease any fees that are charged.

Portfolio Performance

The stock market can present particularly volatile situations in the short-term, so read more about the most volatile stocks​ to trade on right now. Holding through a losing period is harder with leverage, since the loss is magnified by the amount of leverage set at the beginning of the trade. Some tout it as a way to make big money fast and others have unfortunately fallen victim to the risks of engaging in this type of speculative investing. If you are thinking about day trading, I urge you to think again.

A stock priced at $1 would only need to gain $1 of value for an investor to realize a 100% return on their initial investment. By comparison, a stock trading at $100 would have to gain another $100 in value before that same 100% gain would be achieved. The paradox of day trading is that it may seem like a good idea, depending on how the stock market is performing. Day trading is essentially a play on the short-term volatility (or price movement) of a stock on any given day.

Risk Parameters Differ

Traders, on the other hand, normally hold onto their assets for short time frames. Investors generally follow a long-term investment time horizon to achieve their goals. This is usually more than one year as evidenced by the buy-and-hold strategy. The total length of time that an investor takes before they get their money back depends largely on their investment style or strategy and their goals. This means that someone saving for retirement has a longer time horizon than someone who is saving money to put a down payment on a house. Anyone with a 401(k) or an individual retirement account (IRA) is investing, even if they don’t track the performance of their holdings on a daily basis.

Many investors invest for their retirement with a holding period of 20, 30, or even 40 years. On the other side, if you have enough screen-time and trading experience, control your risk, and actively manage your trades, you’ll likely outperform your long-term investing peers. Being an active trading https://forexhero.info/what-is-a-markets/ style, day trading offers a higher profit potential than investing. Another reason we opted to be a day trader rather than an investor is on the number of opportunities that arise when trading. Investors don’t have the advantage of shifting their allegiances within minutes or in often cases seconds.

Duration of trade

Continue reading our day trading vs forex guide to see which of these suit your investment needs and how you can begin trading with CAPEX today. A short-term trader may define an exact level to exit a losing trade and take profit on a winning trade. For example, they may be willing to lose 5% but will take profit if they make 15%.

Long-term investors can take advantage of long-term capital gains tax rates, which can help them save money on taxes. If you hold your investments within a tax-advantaged account, you may receive even more tax benefits. Day traders have different criteria than investors when looking for stocks. As mentioned above, day traders are more focused on technical analysis than fundamental analysis. Traders are not too concerned with a companies long-term potential, management team, etc.

What is the difference between trading and investing?

When it comes to meeting financial goals, reducing volatility really matters. If your account loses 25%, you’ll need a 33% gain just to get back to even. Investors who bought GameStop stock on January 27th, 2021 would have lost nearly 55% of their investment by April 21st, 2021. If you bought GameStop just one day earlier, you’d actually have a 7% gain, vs. nearly 9% for the S&P 500. And buying the stock on January 1 and selling on January 27th would have produced an incredible 1,740% return vs the S&P which was essentially flat.

• When this happens, the initial loss can’t be claimed for taxes.
• Traders may opt to go long and short, taking trades whether prices are rising or falling.
• The stock market can present particularly volatile situations in the short-term, so read more about the most volatile stocks​ to trade on right now.
• Most day traders are institutional traders, who trade professionally for prominent players such as hedge funds, insurance companies, mutual funds, or pension funds.
• Day trading and investing are both viable forms of securities trading.
• In the financial markets, the only sure thing is that there are no sure things.