Trying to figure out which is the best investment style for you? After a little research, you've likely come across multiple variations of investing, all of which seem to offer their perks and possible downfalls. How do you know which style is best for your current situation?
Two popular investment styles are day trading and long-term investing. From the names already, you may have a general idea as to what these two styles entail. We're going to take a more in-depth look into day trading, and investing to see what they are, how they benefit you and which you should choose.
What is Day Trading
First, let's look at day trading. As the name may suggest, day trading is a type of investing that is typically done in a short period of time. Although the name would imply that an investor only holds onto a trade for a day, many day traders will have trades that last for a few minutes, with some lasting for a few days or weeks. Either way, a day trader doesn't hold on to an investment for very long before selling it off.
Day traders look at the stock market a little differently compared to other investment styles. Long-term prospects aren't a factor for day trading. Instead, their focus is on what's happening at this moment and how it could affect the stock's direction. Knowing the stock's direction, the day trader can make a strategy that earns them a profit on that move.
Going this route for investing is tricky and lucrative. It's easy to make the wrong decision and have a significant loss. However, a well-planned strategy can leave you with a big payday. With day trading, you're often looking for quick gains as often as possible.
You'll need a broker or their platform to connect you to the market. Keep in mind when looking for a broker, not all of them are meant for the high volume of trades you'd do as a day trader. Before choosing, ensure your broker and platform supports day traders (check out some brokers in Australia if you're in that area).
Next is long-term investing, and you likely have an idea of this style. Long-term investing is those who buy into a stock and sit with it for multiple years. These investors weather the stock market storm and know when it's time to sell their stock (or maybe buy into a new one).
While day traders look at the now for their investments, long-term investors focus on the company's potential growth. Since they're in it for the long haul, these types of investors consider the short-term effects on a company but don't make hasty decisions off of it. They wait things out to see how the company responds and then decide to stay or pull if the long-term outlook is grim.
Long-term investors often have a plan and purpose for their investment. Common investment goals include retirement, a college education fund, and even paying for a new house. Long-term investors' goals are often quite large since it will take more time to reach them.
Many long-term investors enjoy using a broker, especially if they're not paying close attention to their investments. Hiring a broker allows someone else to take care of their investments and receive updates on their progress. Take a look at this top regulated brokers list for trusted and reliable brokers.
So, Which Do You Choose?
Choosing between day trading and long-term investing is a personal preference, although several factors are considered.
If you're interested in day trading, you'll need first to ensure you have the time to do it. The stock market is only open Monday through Friday, and the operating hours or typically during a standard working day. For those working a full-time job already, day trading may not be a realistic option for you. Many investors quickly lose thousands of dollars because they weren't quick enough on selling their trade.
However, if you have the time to spare and the dedication to this style, day trading can turn into a successful business (in time). Many day traders spend the afternoon and evening preparing for the next market day. They use the morning hours to perform trades, as this is usually when the most movement happens. You may find day traders still performing a few trades in the afternoon, but at this point, they're often prepping for the next day.
Long-term investing is an excellent option for anyone looking to build their wealth and aren't looking for quick monetary gain. You don't need a lot of time for this investing style and can even hire your broker to do most of the work for you. If you're looking to save for significant purchases or retirement, long-term investing is an excellent option.
In the end, determining whether you day trade or long-term invest (or even both) is a personal preference. Many platforms offer free demo accounts for day traders, which is a great way to test it out and see if it works for you.