Day-Trading Dangers

Day trading may be considered investing by some people, but it’s far from it.

Investors (at least Foolish ones) study businesses, carefully buy stock and hold on for the long term--usually years or even decades. They consider themselves part owners of real businesses.

Day traders, meanwhile, are just in the market for the shortest of short-term profits. Using specialized high-speed terminals, they’ll typically place scores of buy and sell orders each day and hold each stock for no more than a few hours, if that.

Most ignore company fundamentals, focusing only on what might make the stock move in the very short term.

So how do day traders perform, on average? A recent study by the North American Securities Administrators Assn. suggests that only about 11.5% of day traders might trade profitably.

The people who appear to be making the biggest killing in day trading are those running day-trading brokerages. These outfits provide day traders with trading equipment and charge them training fees, then commissions for each trade.

Understand that all people who trade stocks online aren’t necessarily day traders. Most, in fact, are simply doing what makes sense: using online brokerages to make investments while paying the lowest possible commissions.