Day Trading: Pros and Cons

by Manny Backus, Day Trading Strategy Expert

There are many pros and cons in daytrading.  While day traders will state they have a rare opportunity to make a great deal of money, have freedom from office politics, enjoy flexible hours, and work in a very exciting environment, they also admit that money can be lost, and not having a paycheck can pose a problem.

For most day traders who are retired, this method is their only means of income (other than the pension they receive).  Thus, there is a constant need to use profits made to pay bills, mortgages, rent, and care for their families.

However, those who are successful in day trading can accumulate large sums of money depending, of course, if they have the knowledge and expertise and have been day trading for several years.  For the average day trader, experts state that they can make anywhere from $100 to $1000 in one day. 

Depending upon the stake, that is, what a day trader can financially afford to lose presents the pros and cons of this article.  While it is clear that someone of means may be able to lose a bit of money, for the average day trader it is not as clear cut.   While most day traders may start with $5,000 in their account, hopefully the stocks he or she chooses will yield positive profits.  If not, the day trader may not be able to amass enough profit to equal a paycheck.  Thus, the need to borrow and use funds which are for college or retirement becomes the source of bankrolling this venture.

One also has to take into account the commissions which have to be paid, as well as any additional fees paid to a broker.  Add to this taxes paid on revenue earned, and you can see quite clearly how the profits will begin to dwindle.

While it was delineated at the beginning of this article there are many other advantages to day trading such as freedom from office politics and the days when you had to deal with grumpy bosses and uncooperative co-workers, the flexible hours are another advantage day traders enjoy. The ability to work at something they love to do and not something they have to do is worth the price.

Of course, not everyone is in a position to set their own hours.  In fact, statistics show that baby boomers will actually retire beyond age 62.  However, for those who have retired early due to their position in the company or because they put in their 25 or 30 years of service, they can choose how they will spend the rest of their retirement years. For those who need to work beyond the minimum retirement age, they may choose to work as a day trader from home during off hours and on weekends. 

Whatever the situation, day trading has its ups and downs for both professionals and amateurs.  Therefore, before making your first transaction, it is advised to research brokers who will offer you the best rate, offer technical support and analysis, return your calls, and have low fees and commission rates.

It is also advised by the Securities and Exchange Commission to “check with the broker to make sure you know how many clients have lost money and how many have made profits.  If the firm does not know, or will not tell you, think twice about the risks you take in the face of ignorance.” 

Finally, day trading is not for the meek.  You have to be strong-willed and know exactly where you stand financially and emotionally.  If you cannot afford to day trade; don’t.  But if you can, do not use any of the funds set aside for family emergencies, children’s college, or pension funds.

If you have saved enough money and wish to begin day trading, ensure you speak to a professional; either someone who is experienced as a day trader, or a broker at an accredited firm who can advise you where and how to begin.

If you are day trading on the side, that is, in addition to your full time job – take some time to research everything there is to know about day trading; the pros and cons, the tools and resources you need, your home equipment setup, and the software which you will need to make your transactions.

Think of it this way; if you go to Atlantic City or Las Vegas to gamble, do you set a limit on the amount of money you intend to lose?  It would not be a defeatist attitude to admit to this, but a more realistic approach to day trading.  More importantly, understand there will be days when you may not see a profit at all.  How you handle this crucial outcome says a great deal about how you will handle future transactions down the road.

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