The risks of day trading
DaytradingCoach.com is dedicated to providing sound and proven trading techniques and support for those who wish to enter the business of day trading. Most of those who attempt to day trade are thwarted by their own lack of understanding and discipline. They have no rules and lose money trying many unproven strategies. While day trading is one of the best opportunities for an individual to begin a business with little capital and initial expense, it also carries with it a great deal of inherent risks.
Please be aware that the risk of loss in electronic trading can be substantial. You should therefore consider whether such trading is suitable for you in light of your circumstances and financial resources.
Potential Day Traders should be aware:
That day trading can be extremely risky. Customers should be prepared to lose all of the funds that they use for day trading. They should not fund their day trading activities with retirement savings, student loans, second mortgages, emergency funds, funds set aside for purposes such as education or home ownership or funds required for current income.
That customers should be cautious of claims of large profits from day trading. Customers need to be wary of advertisements or other statements that emphasize the potential for large profits in day trading. Day trading can also lead to large and immediate financial losses.
That day trading requires knowledge of securities markets. Day trading requires in-depth knowledge of the securities markets and trading techniques and strategies. In attempting to profit through day trading, an investor must compete with professional, licensed traders employed by securities firms. An investor should have appropriate experience before engaging in day trading.
That day trading requires knowledge of a firm's operations. An investor should be familiar with a securities firm's business practices, including the operation of the firm's order execution systems, procedures, and should confirm that a firm has adequate systems capacity to permit customers to engage in day trading activities.
That day trading may result in large commissions. Day trading may require an investor to trade his or her account aggressively, and pay commissions on each trade. The total daily commissions that they pay on trades may add to losses or significantly reduce earnings.
That day trading on margin or short selling may result in losses beyond the initial investment. When customers day trade with funds borrowed from the firm or someone else, they can lose more than the funds originally placed at risk. A decline in the value of the securities that are purchased may require additional funds be paid to the firm to avoid the forced sale of those securities or other securities in an investor's account. Short selling as part of day trading strategy also may lead to extraordinary losses, because stock may have to be purchased at a very high price in order to cover a short position.