If you are into day trading of forex or commodities you are into a risky zone because you could either become extremely rich there could be others who could lose big money. It is all about being well educated, informed and knowledgeable if you wish to make it big in day trading. Over the next few lines we will try and get to know something more about day trading and then move forward.
What Day Trading Is All About
When we talk about day trading, we refer to traders who sell and buy stock throughout the entire day. The main objective is to try and cash in on the relatively small fluctuations which take place during the day. As is the case with investing in stocks, shares, and commodities, it is all about buying low and trying to sell it high. However, when you get into day trading, you must bear in mind that your time frame is reduced from perhaps months, years to a few hours. The main objective should be to successfully complete as many transactions as possible during the day. If X buys around 500 shares and find that the price has gone up by a few points, he could sell it and make a profit out of it after providing for commissions and other expenses.
Advantages Of Day Trading
The biggest advantage of day trading is that it can help small traders to make big money. However, it calls for having the right kind of risk appetite apart from having complete mastery as to how things work in the inner circle of the marketplace. It also is important to have a clear cut strategy without which it may not be possible to make big money. You could find out ways and means by which you can leverage the money that you borrow and put in the day trading activities. If you are in touch with big service providers like CMC Markets you perhaps could gain access to some sophisticated and expensive software solution. They also could provide you with a direct connection with the dealing desk and other perks and facilities could be available for you. These will certainly help a lot in increasing the chances of making big money.
The Role Of Arbitrage
Another big advantage which day traders have in the marketplace is arbitrage. This is a commonly used strategy which is all about getting to know clearly about the discrepancies in the market place. if the price of an asset is uniform across the board, then you do not have much chances of making big money. However, using arbitrage techniques if you are able to see the differences before others are able to find out you can sell the particular product at a higher price and pocket decent profit on a daily basis.
Disadvantages
One of the biggest disadvantages with day trading is that it is extremely risky and one cannot guarantee that money is there to be made. According to experts, most of the small and medium traders suffer huge losses in the first few months of day trading and many of them have no other option but to shut shop. Further it has been generally found that day trading is very expensive. Without the right technological support, systems and other such facilities in place it might be extremely difficult to even break even. There are many traders who could end up having capital losses, taxation could become a big challenge for them. Short term capital gains which you make are likely to be taxed at the current income tax rates. You must therefore have the right information before moving forward.
Further unless you have risk capital which you are ready to sacrifice and lose you could be in the wrong side of the deal as far as day trading is concerned. As a rule of the thumb unless you have around $25,000 in your day trading account, it may not be possible to make decent money. Anything less than that could lead to difficulties in even breaking even.
Hence at the end of the day the pros and cons have to be evaluated strongly before getting into day trading. It is a process which calls for getting the required knowledge and information before moving forward.