Day trading is not considered to be investing in the traditional sense, because you’re not really investing in the growth of a few select companies. Instead of maintaining or growing investment over the course of five or 10 years, day trading involves a quick buy and sell process intended to earn a quick gain. If you’re considering trying day trading, it’s important to understand how this process works.
Raise Enough Capital
To get started, you should have a minimum of $1,000, but starting out with more is always better. Some people borrow their initial start-up capital, but this can put you at a bigger disadvantage. If you’re not successful right away, you will have lost your capital, and you will still owe the money you borrowed.
Making Your First Investment
Your goal is to identify highly liquid stocks and buy $1,000 worth of shares or more in that stock. Once the purchase has been made, you will need to monitor that stock’s performance in the market. Your next objective is to sell as soon as the stock price increases by a few cents.
An Ideal Example
Suppose you buy the stock at 10:00 a.m. and obtain $1,000 worth of shares. By 10:20 a.m., that stock’s price has risen by .50 cents, so you sell. You’ve just earned a gross profit of $500. You will have to pay a commission to the trading platform you use, which is typically between $7 and $27 per trade. This will leave you with a $486 profit.
Don’t Forget Uncle Sam’s Share
Tax laws are applied differently for stocks that are owned for a shorter period of time. A stock you own for one year or longer will be subject to a 20% tax, but stocks you own for less than one year are considered personal gains. This type of income is taxed at a 35% rate.
While day trading can be lucrative, it also comes with higher risks than traditional investing. As long as you have the patience and the disposable income required to get started, you may be able to use day trading to grow your wealth. However, just like any type of investment, success depends on developing a strategy based on research and a keen eye for good investments.
About The Author
Kyle Dennis is a Professional Trader and Educator at Raging Bull Trading, a trading program designed to help both new and experienced traders master the stock market. Kyle originally joined Raging Bull Trading as a new student looking to master his skills. Through Raging Bull’s Millionaire Roadmap program, Kyle became the first student in its history to make $1 million in trading profits. Following his success, Kyle Dennis joined Raging Bull Trading as a trader and educator. He offers his specialized program, Biotech Breakouts, through Raging Bull, and is focused on mastering biotech stock trading.