Day trading has slowly become one of the most popular approaches to make money online. Its popularity surged during the COVID-19 pandemic when most people were staying and working from home.
Day trading is a process where people buy and sell financial assets with the goal of making a profit within a few minutes. In most periods, day traders hold their trades for less than 30 minutes. Some traders open tens of trades per day while others (called scalpers) open hundreds.
Over the years, day trading has become a big industry, with companies like Robinhood and WeBull growing into billion-dollar enterprises. Similarly, many hedge funds that focus on trading like Renaissance Technologies, Two Sigma, and Millennium Management make billions of dollars every year.
In this article, we will look at some of the most popular benefits of day trading in the financial market and why it is an ideal way for making money even as a solo trader.
Table of Contents
What is the financial market?
The financial market is defined as a marketplace where people buy and sell financial assets. These assets include products like stocks, bonds, commodities, and currencies.
The financial market is made up of several important participants. First, there are the trading venues, where these assets are listed. The most popular venues are the New York Stock Exchange (NYSE), London Stock Exchange (LSE), and the HKEX.
In the past, most trading happened in these physical venues. Today, most of the trading has been democratized using technology. As such, many trading venues are almost empty these days.
Second, there are traders and investors. These are people who execute trades in the market. They can be individual traders or large institutional players like hedge funds and investment banks.
Third, there are financial entities known as brokers. In most cases, traders execute their orders using brokers. Today, most of these brokers work fully online. Examples of the most common brokers are Schwab, Fidelity, and Robinhood.
Fourth, there are market makers. These are companies that operate behind the scenes. Also known as wholesalers, these firms are the ones that process orders in the market.
They do this by providing the bid and ask quotes and ensuring that orders are implemented with ease. Examples of popular market makers are Citadel Securities and Virtu Finance.
Other players in the finance market are custody providers, clearing houses like ICE Clearing, CME Clearing, and LCH, and banks.
Types of financial assets
The financial market is made of several assets that people can trade or invest in. Stocks, also known as shares, represent stakes in companies that are publicly traded.
As such, when you buy a stock, you own a small part of the company. In this case, you can make money when the shares appreciate or when the company pays dividends.
Bonds, on the other hand, are debt issued by companies, governments, municipalities, and other institutions. Bond buyers can hold their assets to maturity or trade them in the market.
While stocks are the most popular asset, the bond market is bigger. Studies estimate that the total bond market is worth over $100 trillion.
Currencies, also known as forex, are financial instruments that allow you to benefit when there are currency fluctuations. For example, a trader can buy the EUR/USD pair when they expect the euro to strengthen against the US dollar.
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Currency fluctuates all the time because of several factors like interest rates, geopolitics, economic data, and commodity movements.
For example, the chart below shows that the USD/CNY pair jumped in 2023 as the Chinese economy faltered and as the US dollar soared.
Commodities are also an integral part of the financial market. The most popular commodities that people trade are crude oil, gold, copper, natural gas, corn, and wheat. Many brokers provide access to these commodities in the form of CFDs, spot, futures, and options.
Cryptocurrencies like Bitcoin, Ripple, and Cardano have also become popular financial assets recently. These assets are provided by specialized crypto exchanges like Coinbase and Finance. They are also provided by popular brokers like Robinhood and Schwab.
How to trade the financial market
The finance industry has seen significant changes. In the past, the industry was only available to large investors and traders from hedge funds and other large investment banks.
Today, the industry has been decentralised. In the United States, more than 11 million people are trading in their Robinhood accounts every day. Globally, many forex brokers have come up and enabled millions of people from around the world to trade the financial market.
In fact, many people, including those in the developed world are opening an account with as little as $200.
To trade successfully, there are several steps you need to follow, including:
- Understand the finance industry – You can do this by reading books, newspapers, and other financial materials.
- Select the assets you want to trade – You can decide to trade one asset like stocks or multiple assets like cryptocurrencies, ETFs, and commodities.
- Learn about fundamental analysis – This refers to using the news and economic data to predict the future movement of an asset. It also refers to using tools like the economic calendar, level 2, and time and sales.
- Learn about technical analysis – In this, you learn how to use technical indicators and other price action analysis tools.
- Practice with a demo account – Use a demo account to practice what you have learned. You should also use this time to create your trading strategy and plan.
In total, from a beginner to a real trader, it can take about three months or more to achieve this.
Perks of trading the financial markets
There are several approaches to the financial market. You can decide to be a long-term investor like Warren Buffett or a day trader like Jim Simmons. At Real Trading, we encourage people to focus on day trading, which is a better approach.
The difference between the two is that long-term investors hope to buy an asset today and hold it for a few years. For example, Warren Buffett has held his stake in Coca-Cola for more than 30 years. While this is a good approach, it is also risky since no one knows what will happen during this period.
Traders, on the other hand, focus on buying or shorting an asset and exiting the trade within a few hours (or minutes). This is usually a better approach since you can make money regardless of the direction it moves.
Also, it is a good approach because you can easily predict what will happen within a day.
Working at Your Own Terms
Another benefit of day trading is that it lets you work on your own terms. As an independent trader, you can decide the assets that you want to focus on and the strategy you want to use. In terms of assets, you can focus on a whole range of products like stocks, crypto, bonds, and currencies.
In stocks, you can focus on companies in various sectors like industrials, retail, technology, utilities, and materials. In currencies, you can focus on majors like EUR/USD and GBP/USD or minors like EUR/GBP and GBP/AUD.
Further, in terms of strategy, you can decide to create your own trading approach or use the most popular ones. Some of those you can decide to use are scalping, pairs trading, algorithmic trading, swing trading, and arbitrage among others
At times, you can even decide to take a day off, especially after making a big profit or loss.
› The Case for Starting a Profitable Trading Office
Avoid Inconveniences
As a trader, you can avoid the multiple inconveniences that come from working for another company. For example, you don’t need to wake up in the morning and rush to the office.
Since you will be working at home or in a shared office, you will be in a good position to avoid the many inconveniences such as heavy traffic.
Work at any time
Another beauty of the financial market is that you can work at any time. This means that you don’t need to have a specific period when you will be working. This is mostly because of the fact that the market is usually open on a 24 hours basis every day Monday to Friday.
Another benefit is that the market forces you to rest on weekends. This is because markets are usually closed on Saturday and Sunday. If they weren’t, many people would be forced to trade even during the weekend.
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A Less Expensive Way to Start
One of the best approaches to running your trading as a business is to start a trading office. At Real Trading, we help traders from around the world start their trading floors with just $500. These people now own their trading offices, where they manage teams of traders who trade using our capital and take a cut of profits.
There are several benefits of starting a trading floor. For example, it will help you make more money than if you decide to trade using your retail account. Also, there is room to grow your trading operation by hiring more workers.
Most importantly, you can take advantage of the fact that the financial market is open 24/7 by having people trade during the day and others in the overnight session.
Further, day trading is much cheaper than other businesses you can start like e-commerce, real estate, and fashion. It is one of the only businesses where you can become profitable on day one.
Opportunity for Growth
There are many opportunities for growth in the financial market. This is mostly so if you have an ambition to grow in the financial industry by even working in large firms.
If you successfully run your office well and show that you are experienced in this industry, you can easily get a job at the biggest firms. This is because these firms will always prioritize the people who perform well than those who don’t.
External useful Resources
- Examining the Main Street Benefits of our Modern Financial Markets [PDF] – Center for Capital Markets
