Q: I've seen several advertisements for programs that teach you how to day trade stocks. Could I make money by day trading?
Day trading refers to opening and closing the same stock positions during one trading day. In practice, many day traders hold stocks for minutes, or even seconds, at a time.
Some day traders do make money. However, the odds are definitely not in your favor.
One research report published by several university professors determined that in any given year, only about 13% of day traders achieve a profit. Even worse, the study found that less than 1% of day traders consistently make money.
There are a few possible reasons why most day traders fail, and perhaps the biggest factor is trading commissions.
Let's say that you're moving in and out of stock positions in a manner of minutes, and that you average 20 round-trip trades each day. Based on a $6.95 commission to buy or sell, and about 250 trading days per year, this translates to $278 in commissions every day, or $69,500 for the whole year. In other words, your trades would need to produce nearly $70,000 in profit just to break even.
Day-trading websites will have you believe that the reason so many people fail is that they don't stick to their system or they let emotions get in the way, or any number of other reasons that sound relatively easy to overcome. However, the reality is that the odds are stacked against day traders from the start, and whatever the other reasons for failure may be, the fact is that the vast majority don't consistently earn profits.
The bottom line is that the most certain way to make money in the stock market is to buy high-quality stocks or funds and hold on to them for long periods of time.
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