Is Day trading vs investing the same thing? In fact, just to make things more fun, there's even swing trading as well. Do you want to day trade options? How about swing trade options? Have I lost you yet?
Day Trading vs Investing Differences
- Here are some of the differences between day trading and investing:
- Day traders are in and out of trades within minutes during the same day.
- Investors are holding for the long term.
- Day traders look to scalp $0.10 - $0.50 per trade on average.
- Investors are trying to make several dollars or more holding long term.
When I first started learning about the stock market I had no idea day trading was different than investing. If you're anything like me, I was overwhelmed when I first started. But that's okay, we're here to make your journey as simple as possible.
For today, I thought I'd give you a glimpse into my life. I hope if anything you get a chuckle. And, if you have any tips on planning outfits or meal prepping, I'll take em. Seriously. Keep reading, it will make sense later.
As of late, I’ve been noticing a trend, I meet someone new whether it be at a cocktail party or on a plane, and the topic of discussion turns to, as always, what do you do for a living? Sound familiar?
I hesitate for a few seconds and think, how much do I really want to share with a complete stranger?
Do I give a vague response of self-employed or do I dare tell the truth – as I know the endless barrage of questions will soon be coming my way. Day trading vs investing? (check out our stock basics page).
1. The Dreaded Question
My most recent experience was on a two-hour plane ride next to a lovely gentleman who posed the said question in less than 30 seconds, “what do you do for a living?.”
Being the impulsive person that I am, I say screw it and disclose that I’m a trader and consultant. This confession was immediately followed by an ask of what I thought of Facebook?
What do I think the market is going to do? Side note, he's a bit upset as he lost $10,000 on FB, and yeah, I would be too. Is it a good buy now considering it tanked? Since he's on a role, should he hold Snapchat?
I wish someone had a camera on me to capture the momentary wave of panic that overcame me – this guy somehow thinks I can predict what the market is going to do (it's important to know when to implement a stock loss vs stop limit order).
Is he actually looking to me, me, of all people, to give long term investing advice. I skipped the fortune telling class in university.
Seriously, I can't even plan outfits for the week or meal prep. Little did he know I spent about 30 minutes packing the night before for a month long trip to SE Asia. But, he didn't need to know that.
I have about 115 minutes left sitting beside this stranger and I simply respond, “I have no clue, I’m a trader, not an investor. My only interest is to capitalize on the volatility in the market today”. Hence the difference between day trading vs investing.
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2. Differences: Day Trading vs Investing?
You're probably thinking "capitalize on the volatility in the market today", what is she smoking?
Well, day trading is about buying and selling instruments, or, "things" such as stocks and currency pairs for short-term profit. This can all take place in a matter of seconds or minutes.
What matters to traders is which direction the stock will move next and how the trader can profit from that move. Essentially we trade on momentum and use momentum trading strategies to plan our moves accordingly.
With day trading, all positions are opened and closed within the same day. Similarly, swing trading involves positions being held overnight and being closed out in a slightly longer time frame such as two to six days or even two weeks.
Long-term investing, on the other hand, has the ultimate goal of building wealth over a longer period of time. This is accomplished through the buying and holding of a variety of things such as stocks, bonds and mutual funds. It consists of making trades that stay open for months, and often years.
Is Trading Better Than Investing?
- Day trading vs investing, is one better than the other? The truth is, day traders and long-term investors both make money, and both lose money. Both are viable forms of trading! Some successful long-term investors lose their money when attempting to day trade and some day traders can't pick a good long-term investment.
1. Deciding Between Day Trading vs Investing
The reality is, both are important for a diverse portfolio, they need not be mutually exclusive. Truthfully, we should all be long-term investors, it shouldn't even be a choice.
If you’re just starting out, a number of factors should be considered such as: capital required, time commitment available, personality temperament and risk tolerance.
What amount of time are you able to commit to trading? Are you a busy parent working 9-5 and not able to look at the markets during the day? Or are you flexible and able to participate during the busy opening and closing power hours?
You’ll need to spend time on serious introspection. How will you react when a trade goes against you? Are you able to keep your emotions in check? Can you stick to your strategy or will you panic and sell only to have the stock reverse? How will you handle money conversations with your spouse? Will they think you’re gambling with your families’ livelihood?
If this sounds too demanding, then day trading might not be a good fit for you. However, swing trading options for example, is quite flexible. Not to mention it's a great way to capitalize on the moves in the market.
Whereas, with investing, the majority of time is spent in research and plotting your approach for the long term. Keep in mind, you don't escape the emotional roller coaster as stocks do tank. You just need to have the cahonas to hold on and ride it out!
And in my case, since I struggle planning outfits, I leave it up to the professionals.
2. PDT Rule: Day Trading vs. Investing
Before you go, I need to mention that if you're a US citizen, you must keep a minimum of $25,000 in your brokerage account. If not, you might fall into the Pattern Day Trader (PDT) rule.
Don't fret though, there's some work arounds and a few brokers with no PDT rule.
Click here for the list and a more detailed description of what PDT means for you.
3. Buffet's Words on Day Trading vs. Investing
As for the gentleman on the plane, those 115 minutes were enough for him to understand what in the words of Warren Buffet could have accomplished in 15 seconds...
“Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic...”
In my opinion, the biggest dilemma facing aspiring traders is trying to decide if they want to day trade or swing trade.
To help you decide what strategy works best for you, head on over to our blog where we chat about the different strategies.
Our trading service offers over $3000 worth of free material to get you started in trading. Not to mention our day and swing trading rooms where you can get real-time advice!