The number of people who are trading with a home business is increasing exponentially. Day-trading as a home business can be an exciting and profitable venture, but there are some things you need to consider before starting your own day-trading career.
In this article, we will discuss the pros and cons of day trading as a home business, what you need to know before investing in stocks, how best to manage your risk when trading at home, how much time it takes on average per week for successful traders and more!
What is Day Trading?
Day Trading is the buying and selling of assets on a daily basis. Day traders are often professionals, such as experienced investors or hedge fund managers who trade their own money for profit in the stock market. Day trading can be done with any market such as currencies, commodities, Stocks, Cryptocurrencies or CFDs.
Despite many believing that day trading is a simple way to make a lot of money, the reality is quite different.
The article should cover topics such as choosing market to trade in, find the strategy that works best for you and learn proper risk management with considerations about commissions and margin requirements.
Choosing a market to Day-Trade in
When you want to day trade in the financial markets, you will have to decide on which market instrument you are going to focus your attention. Luckily, investment brokers offer diversity in the types of trading instruments you can invest in.
Some of the main markets that are often used for day trading are:
- Forex Market
- Stock Market
- Futures Market
- Options Market
- CFD Markets
- Crypto Markets
Day trading may be a great way to make money, but it requires a lot of hard work and dedication. Your choice of markets depends on your individual circumstances, from financial resources and risk appetite to familiarity with the market.
Come up with a day trading schedule
Day trading is often most successful when it is done in a consistent manner. Specific hours of the day are typically more conducive to buying and selling stocks, with early morning trading considered one of the most volatile periods for making trades.
As a day trader, volatility is your best friend. The more quickly prices change, the better time it is for you to make a trade and try to get in front of those changes.
The most important part of day trading is having patience because there will be days when everything goes wrong and volatility disappears which means that trades are few or nonexistent. If you know your plan of action on bad days, those days will feel less overwhelming.
Consider your trading risk
Day trading, as a home business or not, is risky. You are taking on the full risk of any trade that you make on your own account and there is no one else to bail you out when things go wrong. Day traders should consider their personal risk tolerance before they start day trading stocks in an attempt to turn it into a career.
Trading stocks, currencies or cryptocurrencies can be extremely rewarding but also very stressful so make sure this type of lifestyle goes line with yours before diving right in head first!
The two sides of trading risk that you need to know are trade risk and daily risk. Trade risk is the potential for loss on a single trade while the daily risk is the overall risk of loss within the day.
Knowing when to take risks and when not to is critical when day trading which means understanding how much you can afford to lose before risking more money.
As a general rule, it is suggested that you never risk more than 1% of your capital on a single trade and no more than 3% of your capital on any day.
Come up with a Day Trading Strategy
There are many different day trading strategies, and you need to test them out for yourself. You can try an Intraday Day Trading Strategy, where you monitor the market throughout the day but trade only after specific criteria are met (such as a technical pattern).
You could also practice Swing Trading in which you buy instruments that have been hit hard during downturns if they’re still trending upwards – this is typically done over periods of weeks or months.
Some other day trading strategies are:
- Following the trend
- Contrarian Investing
- Trading the News
Ultimately, it’s up to your personal preference and what feels right to make sure that your strategy works for YOU before entering into the markets with real money. You will need to study the theory and practice any day trading strategy that seems interesting to you.
Start Trading with a Demo Account
Starting Day trading with a demo account allows you to test out different strategies without risking your hard-earned money. Different brokerage firms provide Demo accounts that you can use to get a feel of the market and your strategies.
Furthermore, you can use Stock Simulators or Forex Backtesting software to validate your trading strategies before you move on with a real account.
That being said, you will need to choose a reliable broker that offers you the tools that you need to succeed.
Choosing a reliable Broker
Ensure your choice of broker suits your strategy for day trading. Day traders should look for brokers that provide:
- Quick trade execution speed & Low Latency Trading
- Graph-Based Trading
- Automated Trading
- Stop losses and take profit orders
- Low commissions
- High Leverage
There are many brokers that meet these criteria. See the table below for a list of brokers who offer these features.
Some Brokers with Low Latency and High Leverage are:
- Interactive Broker
- TD Ameritrade
There is no one size fits all broker. You will need to do your research, read some broker reviews and test the broker before committing to trading with them.
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