Day trading has become very popular as of late, especially with free apps available that make it look too easy.
In short, day trading is when you buy and trade stocks within the same day.
And while this might sound like an easy, fun way to earn some cash by buying the stocks when they’re low, waiting as they rise, then selling them at a profit – it usually doesn’t work out that way.
You see, day trading is actually very complicated, risky, and even addictive. In general, day trading is not a good idea.
But if that’s not enough to convince you, here are 9 reasons why day trading is bad.
|Top 9 Reasons Why Day Trading is Bad|
|1. There Are Financial Risks|
|2. Day Trading is a Full-Time Job, Not a Hobby|
|3. There are Extra Taxes|
|4. Day Trading Doesn’t Consistently Pay Off|
|5. The Stock Market is Unpredictable|
|6. You Don’t Get Rich Quick|
|7. Day Trading is a Stressful Job|
|8. Day Trading Can be Addictive|
|9. Long Term Investments is a Better Idea|
1. There Are Financial Risks
Investing in the stock market in any form is a risk.
You are investing your hard-earned money into something that might result in a profit but may also result in you losing money. Day trading on the other hand is different than just investing as it is much riskier.
If you don’t know what you’re doing and you’re just buying and selling random stocks, things probably won’t end well for you and you’ll likely end up losing money. Even those who know what they’re doing when trading stocks are going to lose money, that is just part of the game.
Day trading is much like gambling, it has the possibility of profit, but also of serious failure.
The US Security and Exchange Commission said that “Day traders typically suffer severe financial losses in their first few months of trading, and many never graduate to profit-making status.”
So day trading isn’t just luck and smooth sailing.
In other words, those who really want to do day trading have to be prepared for a financial hit at the start.
|Starting to Invest?||Our Recommendations||Start Trading Today|
Wealthsimple Trade ($25 Bonus)Only in Canada
|Start Trading TodayRead our Review|
Robinhood InvestOnly in USA
|Start Trading Today|
Though some people might see day trading as a good way to earn some extra money, the truth is – day trading is actually a great way to quickly and easily lose money, the exact opposite of what you want.
2. Day Trading is a Full-Time Job, Not a Hobby
Modern technology has made trading stocks look easy. Some people might picture it as just a profitable hobby and a quick way to make money, but it’s just not this.
You need to forget the idea that day trading is an easy and profitable side gig because again, this is simply not true.
You can get some apps on your phone for trading stocks, like Robinhood, Stash, TradeStation, and SoFi.
These apps make it seem like stock trading is something that can just be done on the go. However, if you really want to do day trading well and have any chance at succeeding, you’ll really need to treat it like a full-time job.
Day trading requires dedication, strategy, and funding. If you try to balance day trading and a full-time job it will probably lead to lots of stress, lost money and an overall lower quality of life.
Not to mention, prime trading hours usually occur during most people’s core work hours (9:30am-4:00pm) which means it’s not something you’ll be able to really do after hours.
Day trading is a risky endeavor guys, it’s time-consuming and requires a lot of effort.
People can spend days, weeks, and months on day trading and not have it pay off. Not only that, but day trading is intense because you need to be paying attention to your stocks all the time so you know exactly when to sell them.
If you are looking for an easy way to make money, day trading is not for you.
3. There are Extra Taxes
There will always be random expenses when investing your money like taxes, commission fees and management fees, but with day trading these expenses can really pile up. The biggest example of this comes in the form of taxes.
If you have held a stock for less than one year, you’ll have to pay income tax on it and depending on how much you make, this could really eat away at a chunk of your profits, making trading even less profitable.
However, if you invest long-term and hold your investments for more than a year, then you won’t have to pay income taxes. Instead, you’ll pay what’s called capital gain tax.
Luckily for investors though, capital gains tax is generally much less than income tax, meaning day trading stocks hits the tax wallet harder then someone who is investing over the long term.
4. Day Trading Doesn’t Consistently Pay Off
A stunning 99% of day traders don’t make a decent profit, isn’t that insane? Why even bother.
There are those who get lucky and may actually do well with day trading at the beginning, but luck doesn’t last forever.
While it is true that some people can make a living off day trading, they are the unique minority. Most people who try their hand at day trading won’t be successful. “Only about 1% of all day traders are able to predictably profit net of fees.”
The people who are in that tiny 1% are probably those who have lots of money or have been doing this for years and are very familiar with the ins and outs of the stock market.
And let’s be transparent here, if you can successfully day trade you can make really, really good money, but we can’t just ignore the other 99% who don’t. So that’s a BIG if.
At the end of the day, day trading is a big risk and a huge gamble, one that very rarely pays off.
5. The Stock Market is Unpredictable
The stock market is very volatile which means stocks can quickly drop or rise in price for a variety of reasons.
Day traders rely on this fact and try to profit off of it. But you see, no one really knows for sure what will happen to the price of a stock.
Surely it could go up in price, but it could just as easily plummet and therefor cost you money.
So many things can affect the price of stocks, from employee layoffs to companies releasing future earning estimates to a global pandemic. Some events cause certain stocks to skyrocket while other events cause them to fall dramatically.
Long story long, if you don’t know the stock market well, day trading is a very dangerous gamble.
To be honest, even if you know how the stock market works, or so you think, day trading is still a dangerous gamble.
6. You Don’t Get Rich Quick
Some people might see day trading as an easy way to get rich quickly. To them, they think it’s simple, buy the stock when it’s low, sell it when it’s high, and then you have a happy profit.
All is well, right? Wrong!
Simply put, this is just a myth and it’s not true. In reality, day trading isn’t anything like that at all.
Not only is it complicated and stressful, but it’s also hard to earn consistently large profits. Day trading is similar to gambling or buying lottery tickets, you are putting money into something that may or may not pay off.
With that said though, just like gambling in a casino or buying lottery tickets, day trading can be lucrative, but in the end, you are far, far more likely to lose money.
Put another way, it is very unlikely that you will get rich quickly with day trading. Simple as that.
Related Financial Geek Article: Is Investing in Stocks Gambling? (Simple Explanation)
7. Day Trading is a Stressful Job
When you imagine someone day trading, you might think of someone sitting at their desk, calmly working in their basement, sipping back coffee, sports on in the background, you know – the glamorous life.
Unfortunately this is not the case though, day trading is a really stressful job. Some say that stress is a day trader’s only true, constant companion.
While at first glance, day trading doesn’t seem like a high stress job, but it really is.
Imagine this, you buy what you believe to be the perfect stock and you think you got in on it at the perfect time. You invest $10,000. 2 hours later that stock drops by 25% before you sell it, you’ve just lost $2,500 on paper. In a matter of two hours! Cheers.
There just isn’t a lot of downtime if you work as a day trader.
You have to be watching your stocks, seeing how much they rise, seeing how much they fall, and calculating whether you should sell them now or wait.
And if you aren’t constantly paying attention, you might miss an unexpected increase in price or an unusual trend that you could have profited off of. Damn it!
This fast-paced nature of day trading along with its high stakes can lead to very serious and stressful times for a day trader. How would anyone ever possibly enjoy this?
Now with all that information in mind, think about how bad excess stress can be for your health. “Medical research suggests that up to 90 percent of all illness and disease is stress-related.”
So, trying to earn money through day trading can lead to large amounts of stress on your mind and body, which begs the question – Is it really worth it?
8. Day Trading Can be Addictive
Many times throughout this article, I’ve compared day trading to gambling.
Just like going to the casino or buying lottery tickets, the short-term rewards of day trading can be addictive. Trading stocks may seem like a harmless thing to do, but believe it or not, your brain can become very addicted to it.
Pleasurable neurochemicals like dopamine and serotonin can be released by your brain when you are risking and investing in stocks.
A person can then become addicted to these happy feelings, and want to trade stocks and risk more money. And just like other addictions, it can be hard to stop.
You might think that if people realize that if someone is obviously losing a lot of money, then they will just stop trading. But research shows that that just isn’t true.
“Traders with up to a 10 years negative track record continue to trade. This suggests that day traders continue to trade even when they receive a negative signal regarding their ability.” – Tradeciety
Even when there are obvious signs that day trading isn’t working for someone and they are losing money, some people will keep trading.
Like all addictions, day trading can literally ruin you financially.
9. Long Term Investments is a Better Idea
Investing in the stock market in general can be complicated, and any investment has the risk of loss. We all know that. But overall long-term investing is a much better idea than day trading.
Long-term investing relies on research to choose a stock that is likely to rise in price over a long period of time. Day trading is simply hoping for the best.
In other words, well researched, long-term investments are much more likely to pay off for you than short term trades, or as I call them, bets.
While no part of investing is completely stress-free, long-term investments is the way to go if you are someone who wants to minimize their stress and maximize their returns.
The Bottom Line
And that is that!
So if you’ve read this article (or even skimmed it), you should now know that there are many downsides and pitfalls associated with day trading.
I personally avoid it all together as I don’t think it’s a long lasting way to grow my money. While you may be able to make a few dollars here or a few dollars there, over the long term I just don’t think it’s sustainable.
Anyways, I’ve said enough! Thanks for reading folks, I really hope this article provided you with some value.