Day Trading For Beginners: What It Is And Why You Should Be Cautious Of It

Day trading is the practice of opening and closing of a security position within a single trading day.

Over the past few months, there’s been a dramatic increase in the number of people day trading.

It makes sense — people are working from home, have more free time, and want to make some extra money.

There are also many people who have lost jobs due to the pandemic and have decided to turn to the markets as a new source of income.

While we’re all for people having side hustles, this one, in particular, should be approached with an abundance of caution.

In this blog post, we’ll present an overview of day trading for beginners and point out a few reasons why you should be cautious of it.

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Day Trading Rules & Definition

First, let’s break down exactly what day trading is.

Day trading can be defined as the opening and closing of a security position within a single trading day.

This can be done in two ways:

  • Buying it (going long) to open a position and then selling it to close out
  • Selling it (going short) and then buying it back to close the position.

These types of trades can take place in any financial market but are most commonly practiced in the foreign exchange, options, and stock markets.

Day Trading Consideration #1: Large Capital Fluctuations

In just one day of trading, you can easily fluctuate between losses and profits.

Successful day trading can bring you quick gains but statistically speaking, losses are more likely to occur.

Due to the nature of day trading, a common strategy is purchasing (or selling) large security positions, which enables you to take advantage of minimal fluctuations in the price.

If the price moves in your favor you can profit very quickly, but this requires more capital than the average investor has to risk (or should be risking).

Pen point to tablet graph stock market trading screen
While day trading may be profitable, it requires considerable time commitment and can cause large capital fluctuations.

Day Trading Consideration #2: Time Commitment

Learning how to read, interpret, and most importantly, time the markets, is difficult.

Securities are extremely volatile.

With the influence of headlines and tweets, markets can be instantly affected in ways like never before.

This constant volatility means you need to treat this like a full-time job. You need to be ready for the inevitable market fluctuations, especially if you’re an inexperienced day trader.

Many people think they can watch a few videos or read a few books to become proficient, but this is a big misunderstanding.

It’s just not that simple. Without the proper experience, you might find yourself looking for another side hustle.

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