Investing over the long term is a tactic that Warren Buffett (Trades, Portfolio) recommends. Steady, long-term investments allow for less volatility and are a proven method of achieving wealth. Day trading, on the other hand, buys and sells securities multiple times per day to earn their money.
Positions are held for only a day with no open positions carried into the next day.
Starting requires substantial capital
One issue is that theres a massive capital requirement to get started with day trading. Legally, theres a $25,000 requirement to start day trading, but $30,000 provides a better buffer for day traders.
If the first day of trading brings your capital below $25,000, the trading account may be flagged and youll lose your ability to trade.
Losses are common, and every trader will suffer from a loss eventually. Capital requirements and maintenance are difficult for new investors that cant afford to lose $25,000. If you trade on leverage, you can lose more money than you have in your account.
Day trading requires a lot of work
Day trading is not a get-rich-quick scenario. You have to be very attentive to your trades, and theres very little leave from work. Trading requires the trader to:
- Work long hours.
- Take very little leave from work.
- Continue their education.
- Take risks daily.
- Everlasting commitment.
Day trading can be stressful, and you need to be able to take calculated risks on a daily basis. Investors that still find allure in day trading should invest using a demo account. Demo accounts simulate trading, so they allow a trader to learn strategies and tactics without the risk of losing money on trades.
Serious day trading requires you to follow daily trends, leverage them and continue analyzing markets. Experts claim that day trading as a hobby sets an investor up for failure and that it isnt until a trader treats trading as a business that they start making money.
Learn to trade before becoming a trader, use demo accounts, learn how to handle losses on accounts where you do not lose your capital first before jumping in and potentially losing your money.
In the ideal world, the capital for day trading is not your entire life savings but money that you can afford to lose. Day trading is a daily commitment, and while theres money to be made, it should not be your only form of investing.
Disclosure: The author has no stakes in the listed equities.