When it comes to becoming involved in the financial market, the first thing to ask yourself is whether it is better to start with day-trading or investing and which of them is more profitable. However, they are both two different methods, and sometimes people even manage to do them both. In order to better analyze what they offer us separately, the article will review the main characteristics, and depending on them, the differences or similarities between them will become more understandable.
Day trading means the process when people are buying and selling assets in a very short period of time, such as minutes or even seconds. For instance, when the price of one stock changes in a day, the trader makes a profit by selling it once the price exceeds the initial buying price. In the case of day trading, all the positions are opened and closed on the same day, and the next day starts with opening the new one.
There are many countries, among them being the US, that require a day-trader with stocks to have the assistance of a brokerage company. They will help you to maintain the trading balance, also known as margins, and those who trade for two or three days out of five working days on the market should have kept $25,000 in their margins.
One of the most important parts is also to create the trading plan and strategy that the trader will stick to during the whole trading period that will be also good for putting emotions aside. It depends on which market you are trying to get involved in because there is a different list of strategies for Forex trading and different in the case of stocks or crypto. The brokerage companies are usually the ones that provide the clients with the proper service to set the strategy and follow it throughout the process.
In the case of day trading, a trader is not required to be holding a certain amount of minimum capital, but it is also suggested to start with $1000. The commission fees should also be taken into account since the brokerage companies are taking approximately 8% out of your one trade.
When a person who is involved in the financial market buys and sells the asset within months or years, and prefers to hold them for quite some time, is called an investor. They usually wait for the price to increase so that the advantage will be on their side. There are cases when the investors are keeping their assets for more than decades which is a longer period of time that makes a lot of difference. This means that the investor is not counting on this investment to live, it is an additional source of income for the future.
However, not all financial markets are profitable for investing, for example, futures have expiration dates, while stocks or already cryptos, especially bitcoin is considered to be a great source for investing for future purposes. However, in the case of long-term investing, there are some additional fees that the inverter might need to pay for a long period of time, for example, management fees, redemption fees, account fees, etc.
Difference between Personalities
It does not matter whether you are involved in day-trading or investing, some feelings are mutual in this case, such as fear of loss and excitement in the case of a successful trading/investing process.
However, there is a major difference between the decision-making process in the case of day-trading and long-term investing. The day-trader in this regard needs to be fully focused for the whole day and more intense, while the long-term investors should keep their emotions cool and have the ability to wait for the long term. Investors have to tolerate patience, while day traders need to be always in shape and full of energy.
The good day traders are usually those who are solving the small problems effectively and want to make profits on a daily basis. This requires a lot of time throughout the day and doing day-trading as a hobby will not cause the same result as the traders had planned. However, those who do not want to spend their whole days sitting at the computers and can maintain the “set and forget” attitude for a long time, are more likely to enjoy investing rather than trading.
It is impossible to say that either of them guarantees the profits for the traders because the loss is the inseparable part of both, day-trading and investing. However, the main thing to analyze before becoming involved in the process is what would be the balance between the loss and profit.
In the case of day trading – profit is a day that might be between 0.5 % to 3 % which might not sound fascinating but in the case of generalizing it on the whole month, it makes the profits between 10% to 60%, which can be quite a significant number. Higher returns are possible in the case of owning a smaller account, however when the account size of the treader grows, the returns are decreasing in numbers. It means that in the case of a 10% return if you start the trading year with 30000 $, you might end up with 95000 $ at the end of the year. However, in case of losing even a small percentage, your funds will decline more than they would increase in case of profits.
When it comes to investing – it is more likely to overcome the market flaws, because it is spread over a long period of time and little changes do not make that difference, unlike day-trading. However, if the trader is not holding the secured funds, the possibility of losing a large amount of money is more intense. You might end up losing all the money that you started with. Some stocks might not even become able to recover from the crisis and stop the performance on the market.
Summing It Up
Finally, to sum up, the decisions should be made by the treader depending on the conditions that he/she has. For example, if the trader has the initial capital, time, and energy to dedicate your day to the trading process, then day-trading is considered to be an excellent way to make money. However, it also requires a lot of energy and a good trading plan and strategy to keep the trading process efficient.
It is true that investment is also associated with risk, however, it is less risky than day-trading for beginners, because it requires solid initial capital and even small changes make a lot of difference on the market. If the trader does not like the idea of being on the computer for the whole day, then the investment is more suitable for him/her.
Thus, we cannot say that either of them is profitable or not, because both of them are tested methods and have proven their effectiveness. The most important fact to keep in mind is that in the case of choosing any of them, it is important to stick to the strategy that you set before starting the process and put aside your emotions. Both of them can lead you to success in the case of executing everything as necessary.