Investing 103: Is Day Trading Smart Investing or A Risky Gamble?

While we have typically looked at investing from a long-term perspective in our coverage, there exists another type of investing called day trading. 

Day trading is the act of buying and selling a certain stock during the course of one day. 

Typically equities and options are the only types of securities you can trade in a single day. Doing so allows an investor to profit on the events that move stocks and options, like political statements, company earnings or legal actions, to name a few. 

Day trading can be lucrative, as long as you’re armed with the right information. 

If, for instance, you follow a biotech company closely, and learn early from a news source that a drug the company has been studying will soon come to market, you may buy the stock for $5. During the day, as you watch the stock’s price increase as more investors hear the news, you may choose to sell the stock at $10, to ensure you have made a profit. 

However, day trading can be quite risky. The chances that one times the market accurately, and has information that is truly unique are low.

Most day traders now use software that is programmed to trade stocks if certain events occur. However, these technologies are inaccessible without a significant amount of money. 

Without it, day trading becomes far more like gambling: you may get lucky when picking a few stocks, but your luck comes with significant risk. 

- Alicia McElhaney / She Spends Issue #63

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