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How much investment does it take to be a successful day trader?
Can you start out small or do you need a large amount of money to even begin?
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4 answers
Updated
Fred’s Answer
First - I am not an expert in stocks, trading, or anything like that. Do not take my advice as the definitive answer.
Second - Day trading is EXCEPTIONALLY risky. Prices are inherently unstable over the short term, and minor fluctuations can wipe out any profits in the blink of an eye. My advice would be don't do it.
Now, if you are still going to do this, technically you could do it with very little money. You can throw $100 into the market and mess around, and see what happens. You should be prepared to lose all of it, though. There is always going to be someone out there with more information and a faster connection - the two things you need to be effective at this. Consider reading "Flash Boys", by Michael Lewis. Some companies went to monumental efforts to let their network traffic arrive 10 ms faster than the competition, and made millions. So unless you are going to have a very high speed connection to the market, with up to date (i.e. not 30 minute delayed) quotes, you don't have a chance.
Second - Day trading is EXCEPTIONALLY risky. Prices are inherently unstable over the short term, and minor fluctuations can wipe out any profits in the blink of an eye. My advice would be don't do it.
Now, if you are still going to do this, technically you could do it with very little money. You can throw $100 into the market and mess around, and see what happens. You should be prepared to lose all of it, though. There is always going to be someone out there with more information and a faster connection - the two things you need to be effective at this. Consider reading "Flash Boys", by Michael Lewis. Some companies went to monumental efforts to let their network traffic arrive 10 ms faster than the competition, and made millions. So unless you are going to have a very high speed connection to the market, with up to date (i.e. not 30 minute delayed) quotes, you don't have a chance.
Updated
Timothy’s Answer
"Day" Traders employ risky active strategies in an attempt to take advantage of market inefficiencies. The frequent trades incur high transaction costs, capital gains taxes, and more often than not do not outperform the market. You are likely to lose money employing this strategy.
An alternative and less risky strategy is called "Passive Investment". With passive investment, you can purchase shares of a mutual fund that track a broadly diversified portfolio of investments (like the S&P 500). Diversification allows you to avoid risk.
I suggest you avoid day trading and explore alternatives strategies like passive investing.
I highly recommend a book called "A Random Walk Down Wall Street" by Burton G. Malkiel. Mr. Malkiel gives a great overview on finance and investment -- very accessible and interesting for someone just getting started!
Link to Amazon below.
https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/0393340740/ref=asc_df_0393340740?tag=bingshoppinga-20&linkCode=df0&hvadid=80126965543717&hvnetw=o&hvqmt=e&hvbmt=be&hvdev=c&hvlocint=&hvlocphy=&hvtargid=pla-4583726541563747&psc=1
An alternative and less risky strategy is called "Passive Investment". With passive investment, you can purchase shares of a mutual fund that track a broadly diversified portfolio of investments (like the S&P 500). Diversification allows you to avoid risk.
I suggest you avoid day trading and explore alternatives strategies like passive investing.
I highly recommend a book called "A Random Walk Down Wall Street" by Burton G. Malkiel. Mr. Malkiel gives a great overview on finance and investment -- very accessible and interesting for someone just getting started!
Link to Amazon below.
https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/0393340740/ref=asc_df_0393340740?tag=bingshoppinga-20&linkCode=df0&hvadid=80126965543717&hvnetw=o&hvqmt=e&hvbmt=be&hvdev=c&hvlocint=&hvlocphy=&hvtargid=pla-4583726541563747&psc=1
Updated
Mark’s Answer
I'd say $3,000 or $4,000 would be a good place to start.
Other important considerations:
1) Find a discount broker that gives you free trades. This will help you preserve your cash. Fidelity and Schwab both offer free trades.
2) Find out how to use Stop Losses. And put in a Stop Loss on every single stock you buy. This will also help you preserve your cash.
3) Start out with small "bets," that is, $200 or $300 per trade. Not $1,000 or $2,000, like I did when I started out. This strategy, you guessed it by now, will help you preserve your cash.
The key is to stay in the game.
Other important considerations:
1) Find a discount broker that gives you free trades. This will help you preserve your cash. Fidelity and Schwab both offer free trades.
2) Find out how to use Stop Losses. And put in a Stop Loss on every single stock you buy. This will also help you preserve your cash.
3) Start out with small "bets," that is, $200 or $300 per trade. Not $1,000 or $2,000, like I did when I started out. This strategy, you guessed it by now, will help you preserve your cash.
The key is to stay in the game.
Updated
Noah’s Answer
I reccomend that you introspect on the reason you want to day trade. Chances are, it's because you want money and there are lots of ways to go about reaching that goal. Day trading is among the riskiest ways and investing in general doesn't yield significant results unless you already have a fair bit of money. Even still, compound interest is a powerful tool so it's better to start investing as early as possible so you can take advantage of not only that but also the habits you pick up along the way. I suggest you do some research on stocks, basics of financial statements, how the stock market works, different kinds of portfolios and asset classes as that will be important to know regardless of what style of investment you choose. Plain bagel is a great YT channel that can teach you most if not all of this info. You can also consider trying paper trading (aka practice trading with fake money) or you could even set up a custodial account with the help of your parents and invest a bit of your own money to start out.
I also suggest that you ask yourself the following questions:
What does money mean to you? (once you get your first answer ask why that is for roughly 3-5 more times, i.e I want money to start a business, I want to start a business to be self-sufficient and independant, I want to be independant because I value freedom, I value freedom because it allows me to help people, etc.)
What stuck out to you about day trading that peaked your interest? What else have you heard of and how much have you not experienced yet in terms of finance and investing? (aka try to increase your diversity of knowledge and learn about all of your options)
I also suggest that you ask yourself the following questions:
What does money mean to you? (once you get your first answer ask why that is for roughly 3-5 more times, i.e I want money to start a business, I want to start a business to be self-sufficient and independant, I want to be independant because I value freedom, I value freedom because it allows me to help people, etc.)
What stuck out to you about day trading that peaked your interest? What else have you heard of and how much have you not experienced yet in terms of finance and investing? (aka try to increase your diversity of knowledge and learn about all of your options)