Online trading can be a big thrill for beginners … and even more so with the super fast paced day trading. Day trading can be one volatile roller coaster since traders buy and sell stocks continuously, numerous times in the course of a single day. The internet has opened up the world of trading to even the most inexperienced of traders and trading is one of those things that can go horribly wrong if not handled properly. Let's take a look at three common day trading mistakes that both new and seasoned traders often make and what you can do to avoid these pitfalls.
Lack of knowledge: The importance of educating yourself can not be stressed enough when it comes to day trading. Many traders just jump into the arena and find themselves massively unprepared and minus quite a bit of cash! If you are new to the trading world first educate yourself on how the market works and what entails. You will have to learn how to strategize and develop your own trading strategy and plan. Many traders do not put in the effort to analyze trading instruments, learn to watch the markets or do some detailed research; the result- failure. Do your homework, make a detailed trading plan and stick to it.
Letting emotions take over: One of the costliest mistakes a trader can make is trading with emotions. It is a huge mistake to let your mood determine your investing activities; always undertake any trading activity with a clear head. Greed, over-enthusiasm and fear can be some of the worst emotions and letting these emotions overtake a logical and well thought out trading plan and will most likely backfire big time, especially with the sheer volume involved in trading. Making emotion based decisions most probably have you altering your buy or sell positions and the wrong time. A little discipline goes a long, long way.
Playing with money you can not risk: Never, ever fund your trading activities with money that is essential to your day to day living expenses like your mortgage or your bills. Playing with money you can not afford to lose will drive you to trade with fear and trepidation …. not a good combination. Plus the face that day trading in itself can be pretty risky will just keep perpetuating the cycle and you could end up losing more than you began with. You also have to keep into the account that you will be paying broker fees, account fees and transaction fees that can add up to quite a bit with the volume involved in day trading
Source by Reddy Ravi
If you want to start trading today then you need to know the rules of this type of trading. You must become familiar with these rules before you start. Generally the day trading includes the practice trading in stocks, shares, equity index futures, commodity futures and many more within that specific trading day. The involvement of various features like margin trading and electronic trading has created opportunities for the individuals participating. Those who take part in such trading are generally known as day traders. These traders are usually well funded and well educated. They use high amounts of leverage and short-term trading strategies to capitalize on small price movements in highly liquid stocks.
The Rules and Regulations for This Type of Trading
There are some day traders who buy stocks, hold them for a few hours and then finally sell them when the price goes high. All these phases happen on a single day of trading. They are generally called pattern day trader. These people are typically well-established in the field and have in-depth knowledge of the marketplace. The pattern day traders follow several rules set by the Securities and Exchange Commission (SEC). The pattern day traders must have a margin account for such trading. The margin account requires the depositing of a minimum amount of money. The amount set by the SEC is $ 25000. If you do not have such an account then you will not be able to trade. For trading with a cash account there are some rules set by the authority. You need to pay a security amount for cash trading. For the regular trading of shares you need to meet the minimum equity or margin calls. Therefore, you need to make your trading style clear when you are thinking about the day trading. The trading includes both loss and profit. So you should be prepared for any of them.
When you are only thinking of making the advantages of the stock market then you can opt for options trading. You can choose your desired one of many options. In comparison with the day trading, they can provide you some greater return. The day trading involves various risks. It is because you have to buy and sell the stocks within a single day.
Tax Rules for This Type of Trading
Day trading works as an alert option. Therefore, you need to pay tax for that too. Generally the tax is paid to the federal Government when shares are traded. Those who have participated several times a week are called investors by the IRS. There are some ways available through which you can reduce the amount of tax. The expenses related to investment like computer and newsletter subscription are not included in the tax. You can definitely save some money by showing all these expenses.
Day trading can occur in any marketplace, but the most common platform is the stock market or foreign-exchange market. It can bring some quick money for you. But you can become a victim of losing at any time. It is very difficult to succeed at trading without a concrete plan. Therefore, step in this business with proper knowledge.
Source by Cathy E Goulart