Day traders typically trade CFDs instead of stocks
Only 24 percent of dealers make a profit
Day trading describes a trading method in which special financial instruments, which are often leveraged, are bought and sold several times within a single day. With the help of this so-called intraday trading, the investor pursues the goal of exploiting short-term movements in the market in his favor and making a quick profit.
Day trader vs. long-term investor
In contrast to classic buy-and-hold investors, as soon as they have bought a position in the market, day traders are constantly concerned with the price movements of the respective underlying asset in order to be able to react to every small change. Accordingly, intraday trading requires a lot of concentration, strong nerves and, of course, time. Because day traders have to make irrevocable decisions within a very short time in order to realize quick profits or limit escalating losses, which have a direct effect on personal profit. As a result, day trading is the exact opposite of a conventional investment strategy, which is usually associated with a holding period of at least five to ten years.
Another very striking difference that separates a day trader from a long-term investor is the very different approaches. While a classic investor mainly concentrates on the fundamental data of individual companies or ETFs and funds, a day trader focuses exclusively on the chart technique of the respective underlying. In intraday trading, the focus is mainly on the liquidity, the trading volume and the volatility of the respective asset. Contrary to the conventional investor, the day trader prefers underlyings that have a very high volatility. In
In this context, it is not really important for the trader which underlying asset he is trading.
The classic markets and instruments for day traders
While young traders, who are often relatively inexperienced, mostly specialize in stocks and indices, more experienced speculators often trade more in commodities, cryptocurrencies and foreign exchange. The foreign exchange market, which offers a large number of different currency pairs and a high level of liquidity, is one of the most classic markets for day traders.
Traders who trade forex, for example, do not invest directly in dollars or yen, but only in contracts for difference. These so-called CFDs (Contracts for Difference) are derivatives that derive their performance from a special base value. Compared to the stock investor, the CFD trader does not acquire a direct stake in the company, but only a claim that allows him to participate exclusively in the price development of the base value. CFDs have the great advantage that they offer the trader the opportunity to leverage the capital employed. The CFD trader can move more money on the stock exchange with the same capital investment than with a direct investment. In addition, CFDs offer the opportunity to benefit from rising as well as falling price quotations.
An intraday trader needs these core competencies
People who want to actively get into day trading need, in addition to an account with a CFD broker, a basic understanding of chart analysis, as well as a high level of discipline and mental strength. In addition, as a retailer, you need an individual strategy that must be adhered to at all times. After all, traders who just chase after market movements and change their approach and approach day in and day out are very likely to be financially shipwrecked very quickly.
In addition to the basic knowledge of technical analysis and a personal strategy, traders naturally also need a lot of courage and sufficient self-confidence to be able to process high-loss deals, which are naturally part of every trader’s day-to-day business. Because nothing is more unrealistic than the expectation of closing every trade with a profit. Good day traders are characterized precisely by the fact that they do not allow themselves to be frustrated by losses, but instead immediately accept, analyze and eliminate their mistakes.
Can you really get rich with day trading?
Of course, it is not impossible that you can make a fortune with day trading, just as it is not impossible that you become a millionaire with a lottery ticket. However, the statistics clearly show that around 76 percent of retail investors trying to build a quick fortune while trading CFDs lose their money. Accordingly, the question of whether you can really get rich with day trading cannot always be answered with a yes or no. In the
In the majority of cases, however, intraday traders lose around three-quarters of their trades. Thus, it is three times more likely that you will lose a fortune with day trading instead of making a fortune.
However, these high risks are usually known to every day trader, as the average profit probabilities have to be openly communicated by the individual CFD brokers. Due to an individual form of systematic misjudgment of personal abilities and competencies (English. Overconfidence-Bias), nevertheless the majority of the day traders believe that they are consistently among the lucky 24 percent who earn money in intraday trading. Accordingly, some brokers are currently booming, because the volatile market phase is now leading more and more people to supposedly lucrative speculations on the stock exchange. However, primarily only brokers and exchanges earn from these businesses, but not small investors.
Goethe’s Mephisto already knew the dark side of wild speculations and warned Faust: “A guy who speculates is like an animal, led around in a circle on the dry heath by his evil spirit, and all around is beautiful, green pasture.”
Pierre Bonnet / Forex-news.com.net
This text is for informational purposes only and does not constitute an investment recommendation. Finanzen.net GmbH excludes any right of recourse.
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