Investing Ahead of Day Trading
With piggybank savers weak from zero interest rates, there are only two choices left when it comes to managing money these days; day trading or investing. We’re about to delve into both approaches, worlds apart, but with one the de facto favorite; investing.
Investing
Investors believe in the unseen, the fundamentals underneath the chart. The investor’s time is spent turning businesses inside out and upside down, searching for clues that might reveal their possible forward performance. The idea is to get a handle on tomorrow’s cash flows, assuming “tomorrow” is at least a month or year away!
You pay fewer capital gains taxes after selling a stock you’ve owned for longer than one year, and you also benefit from the magic of compound interest, the “eighth wonder of the world,” according to Albert Einstein. Investors don’t trade every day, far from it, so they don’t rack up lots of little commissions from a stockbroker.
You can invest in undervalued names, ride force majeure catalysts, fly with brand or tech themes, front-run market momentum, or just settle for a comfy, safe, low-cost exchange-traded fund (ETF). If you’re investing, you’re winning!
Day Trading
This is, at best, a world of high—octane action, where traders rely on technical signals to make predictions of the future. The fast-moving lifestyle of a home-grown millionaire traders sells itself really well in get-rich-quick books, but it’s dumb. You’re up against Wall Street’s supercomputing algorithms as well as financial markets regulators!
The US Securities and Exchange Commission (SEC) restricts ‘pattern trading’ to only those with more than a $25,000 equity balance in their trading accounts. Pattern trading is defined as four trades in five days, which some stockbrokers have already banned outright, and almost all others strongly warn against.
If you’re trading options, short-term or long-term, commissions climb even higher and implied volatility in the markets could hurt your profit and loss even if all else is equal, ceteris paribus. The world of puts and calls can be complex and a sparsely traded instrument is bound to cost more to trade.
You may not be able to get out of it as ‘time decay’ sets in and your time-limited option bet trickles toward a worthless expiry. Hence we don’t support options on Invstr!
Options or not, it’s an uphill battle to make money day trading because of the institutional competition and because such frequent trades rack up large stockbroking fees and taxes, but the most dangerous aspect? Leverage.
Your .1%/per second gains need leveraging with borrowed money if they’re to get big, leaving no room for human error. If leverage works, you’re a genius, and it’s very addictive. If not, you’re a fool, you’ve probably lost more than you put in.
The brokerage industry relies on ‘margin’ traders as an important source of revenue because commissions on normal trades are falling. This has led to brokers’ background checks on day traders turning into a bit of a joke, but it’s not a joke.
We’ll be providing parental controls for how accounts are opened and setup.
Time for you to take charge!
We’re sneaking you a shortcut here. We want to make Fantasy Finance an ideal training ground for future success beyond the game, so expect all kinds of updates committed to improving our simulation of the real world.
We’re in this together, as invstrs, not trdrs!
