Day trading is one of the newest ways for independent traders to make a living without having to work for a registered firm, obtain a Series 07 license, or pass any exams. Anyone over the age of 21 can start buying and selling securities in the privacy of their own home after doing about 20 minutes of paperwork.
There are dozens of advantages to pursuing this course, including the ability to profit in up or down markets, never hold shares overnight, and more. Here’s a brief list of the critical advantages of day trading.
1. Profit in Good or Bad Markets
Most independent entrepreneurs who deal with the securities markets take both long and short positions. The essential advantage here is the ability to profit whether a particular company’s share price rises or falls, as long as you predict the direction correctly.
2. Don’t Worry About Fundamental Analysis
Fundamental analysis looks at the overall health of a company and is typically used to assess price changes and risk on a long-term basis. There’s no need for it in short time frames. That means if you usually hold a position for less than a few hours, you can apply one or more technical strategies to all your trades.
3. Avoid Pattern Day Trading Rule with Proper Account Size
One of the most attractive features of buying and selling securities during a single market session is that there is never a risk of losing money at the opening bell. You’ll be holding nothing at the open and close of each business day. All your risk is closed out before that final bell. Of course, it’s essential to understand how the pattern day trader rule works.
If you buy and sell the same security on four or more round-trips within five consecutive business days, you’ll be required to have at least $25,000 in your brokerage account. If you break the rule and don’t yet have an account that large, you’ll be frozen out of doing any transactions for 90 days or until you bring your account up to the minimum balance, whichever comes first.
4. High-Profit Potential
Day trading is one of the few areas of the securities field where independent, unlicensed people can earn generous profits in a small timeframe. There’s also a potential for large losses, and a person can even lose their entire investment if they overfund just a few positions and face consecutive losses. But with smart money management and a cautious attitude, it’s possible to earn a living by closing out your positions before the day’s final bell.
5. Low Startup Costs
Unlike many at home business ventures, there are virtually no startup expenses. It’s possible to consider your initial account balance as a startup cost, but that’s misleading because the money belongs to you, and you are allowed to spend it as you wish.
Other than a computer connection, perhaps a few educational books and a minimum opening balance with an online brokerage, it costs nothing to begin trading stocks and options from your home or office.
