For many people – especially those living in the United States – the COVID-19 pandemic has changed daily life considerably. With large parts of the country stuck at home, millions have turned to day trading and buying individual stocks as a way to earn an income until they can go back to work.
Apps like Robinhood, which allows people to trade individual stocks, have seen a significant increase in activity during the pandemic. According to NPR, Robinhood increased its number of users from 10 million to 13 million in the first four months of 2020.
Robinhood was founded April 18, 2013. For a company that took over seven years to get to 10 million users, adding three million users in just four months is a rapid increase.
This begs the question: is buying individual stocks a fad that will fizzle out within the next year?
Many investors swear by mutual funds and ETFs, finding individual stocks far too risky. While trading individual stocks is certainly riskier than buying index funds, one can’t help but wonder whether individual stocks are also worth considering.
So, are individual stocks a viable option, or are they no better than buying lottery tickets or spinning the slots in Vegas?
What is Day Trading?
Day trading involves buying and selling individual stocks, often all within the same day. One way to do this is via momentum trading, or buying stocks that are on the rise and then selling them shortly thereafter.
But, as you can probably guess, doing this both successfully and consistently is easier said than done. That is why people interested in day trading turn to services like Investors Underground. If you go this route, read this Investors Underground review to see if this company suits your needs.
The cost of these services may seem a bit high at first, but many members have been around for years, which is a testament to how effective they are.
Day trading certainly isn’t easy, and doing it effectively is a full-time job. It’s not easy to keep up with everything going on in the market, which is why many traders seek the help of others when making trades.
But like anything, day trading is as much an art as it is a science. Each day trader has their own unique style that works for them. As traders gain more experience, each finds a niche that works.
Is Day Trading Worth It?
Critics of index funds tend to point out that these funds result in buying into dozens, if not hundreds, of underperforming companies. This has led some to look for a better return.
But you might be asking yourself the obvious question: if day trading is so great, why doesn’t everyone do it? One of the biggest reasons is that it necessitates trading during business hours.
The markets are only open during regular business hours, so if you can’t be actively trading during this time, day trading isn’t really an option. In other words, it isn’t really something you can do part-time outside your regular, 9-5 job (hence the name: day trading).
Many day traders – especially those who have a lot of guidance around the latest market developments – can make a lot of money. Of course, you must buy shares first in order to sell them at a profit, which means you need some capital to get started.
It is difficult to know how much money day traders typically make as an outsider. However, some articles suggest that full-time day traders can make $5-10,000 per month.
I even found an article from one day trader saying he made over $90,000 in just three months. I am fairly confident that this type of profit is an outlier, but it suffices to say that day traders can indeed do quite well.
How Much Do I Need to Get Started?
In the United States, you must have at least $25,000 on hand in order to day trade. If your balance goes below $25,000, you must add a deposit before you are allowed to day trade again.
Beyond this, all we can say is that the more money you have on hand, the better. The more money you have, the more you can buy and thus sell at a profit later.
If you are thinking that more money means more money to lose, that is a valid concern. That’s why groups like Investors Underground are valuable as they can help you make better trading decisions.
Is Day Trading Just a Fad?
Day trading is more than just a passing fad. It may decline somewhat as the COVID-19 pandemic is brought under control and people return to their day jobs, but that doesn’t mean it will go away completely.
After all, day trading itself has been around much longer than the pandemic. Investors Underground was founded in 2004 (then known as Investors Live). Day trading has been around a long time and will continue to be around indefinitely.
Is Day Trading Right for Me?
Two of the most important things to keep in mind about day trading are the risk and the startup capital needed.
No, day trading is not without risk. Unless you have a crystal ball, it is impossible to avoid all risk. That said, day traders have come up with various methods to help make better trading decisions and mitigate some of the risk.
And as mentioned earlier, you must have a significant amount of capital in order to start day trading. $100 isn’t going to cut it; those who don’t have much to start are better suited to a buy-and-hold strategy.
Aside from risk tolerance and capital, another thing you should have is knowledge. The internet is a wealth of information, and it’s best to learn as much as you can before you go all-in on day trading. You can also start placing a few small trades in a brokerage account to familiarize yourself with the process.
Is day trading right for you? The reality is that it isn’t right for everyone, but if you ease into it with the right expectations, it could end up being a lucrative endeavor.
But like everything else, don’t expect to get rich overnight. Few things in life that are worth doing are quite so easy.
How to Get Started
All you need to get started is a brokerage account – that is the easy part. The challenging part is coming up with a winning day trading strategy.
Although platforms like Robinhood have been popularized during the pandemic, there are numerous trading platforms that are well-suited to day trading. Ally Invest, Charles Schwab, E-Trade, to name a few – all are ideal places to start day trading.
Perhaps most importantly, you must have a strong sense of patience and a willingness to learn. Day trading can be tough and is not without risk. That is why it’s so helpful to be part of a community that can provide support and some trading guidance, too.
Those who aren’t serious about learning to day trade will come and go; the coronavirus is no exception. But for those who are willing to stick around and stay committed, day trading can be incredibly rewarding.