As the COVID-19 pandemic continues to spread across the globe, more people than ever before are stuck at home, looking for innovative ways to make money. Thousands of Americans have now turned to day trading to alleviate their boredom and bring in some much-needed income – especially those who’ve lost their primary sources of income due to economic upheaval.

For those looking for alternate sources of income, day trading may seem like the perfect way to earn a few extra bucks. Even though the success rate of this form of trading is comparatively low, a record number of amateur traders are now making the most of their spare time by trying their hand at stock market investing.

Unfortunately, only a few of them will experience any real success. Traders are attracted to day trading by the prospect of huge successes. But what few people are being told is that they run an equal risk of experiencing big losses, too. 

At the end of the day, if you want to day trade in 2020 with any real chance of returns, you need to be financially secure enough to comfortably lose any investments you make, before you take the plunge.

Day Trading vs Long Term Investment

There are several reasons why day trading is not the ideal option for making money in the trading market, and why long-term investments are a better choice. 

Ultimately, even the stocks that day traders have traditionally experienced success with are volatile at the moment, and certainly don’t guarantee returns. 

Let’s assess the arguments that day trading advocates are using to justify their actions in the times of the coronavirus.

Day traders are pointing to market downturns like the COVID-19 crash as concrete evidence that long-term investing is not viable. They note that buy-and-hold investors are willing to let all of their profits fly out the window with minimal risk management involved. There’s also an element of desperation involved in this reasoning. The recent explosion in day trading is partly because of increasing financial strain in the US and beyond as people look to meet their aspirations on tightening budgets.

On the other hand, these day traders need to consider risk at all times, set loss limits and limit their trades to prevent themselves from becoming financially drained. Experts consider day trading to be as much of a gamble as it is an investment, warning that losses are particularly likely in an economy fraught with unprecedented and unpredictable pandemic-related risks.

Still, there are many pro investors who adhere to day trading strategies. They offer services to customers and work on a recurring subscription model to make their money, issuing trade alerts constantly throughout each day. These professionals have a drastically short-term approach and aim to secure profits from stock price moves that last mere hours, or even minutes. 

Most of them can trade on either side of the market—that is, on stocks either increasing or decreasing in value. Long-term investors would generally choose not to follow this model, and this makes day traders appear especially skilled amid bear markets. On closer inspection, this approach tells a different story.

Important Day Trading Considerations

Day trading’s track record is unfortunately not a flawless one, especially in a post-COVID-19 financial world. Day traders run into numerous issues during their day-to-day trading activities, which may be exacerbated by current market fluctuations. 

These pervasive challenges include:

  • Poor batting averages. Statistics show that only around 30% of day traders will make money in a single day, while a paltry 3% will make money consistently for 300 days in a row.
  • Tax challenges. Even those lucky enough to earn money for a day trade will have to pay regular income tax rates on their short-term gains. This can quickly negate any profits you’ve made. Long-term investments, on the other hand, receive preferential tax rates, and may be exempt from tax altogether in some cases.
  • High trading costs. Some day traders believe that brokerage companies don’t charge commission on stock trades, so it must be free of cost to buy and sell. However, those companies who take orders from traders often offer less to purchase shares than they charge to sell them to you. This is not an issue for occasional traders, but these costs can add up rapidly for those who trade regularly.
  • Being targets for the pros. Day traders face off against Wall Street professionals with huge technological and financial resources at their disposal. They’re certainly better at trading than most of their rivals, and they will target you if they get the chance. Especially if you seem like a weak link.

Last but not least, day traders will never be able to secure the massive long-term return potential of the stocks they buy. Their downsides may be limited compared to longer investors’ during bear markets. However, they have to settle for taking minimal profits again and again instead of watching their shares grow exponentially over time.

Conclusion

Day trading may seem like an inviting way to make money during the pandemic, but it won’t produce success for everyone. Although trades play out in a single day and the process is fast-moving, there’s no such thing as getting rich quick from this type of trading. 

 A few traders will prove lucky, but the majority could lose significant sums of money if they don’t tread carefully. For those who are desperate for an income after losing their jobs or suffering financial strain, day trades offer no guarantee of returns. Instead, many will experience losses that could place further pressure on their monetary situations. 

A safer option to consider in 2020 is to handle the financial obstacles you’re facing right now, and then to hunt for promising buy-and-hold stocks that will aid you in finding lasting financial success. This route will require patience, but it’s a far safer option at this point in time, especially if you cannot metabolize the fiscal losses that could accompany day trades.

Meta Title: Hindsights for Day Trading in the COVID-19 Era | The Trader Chick

Description:  Day trading may seem like an appealing way to make extra money in pandemic times. However, traders should know there are risks involved too.

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