In short: You could lose money, potentially lots of it. Day trading is exactly what it sounds like: Buying and selling — trading — a stock, or many stocks, inside of a day. It’s all about making predictions and timing the market, with the goal of making a small profit on each trade. In an ideal world, those small profits add up to a big return.
But research has shown that only 1% of day traders consistently earn money; many, many lose it. It’s essentially a full-time job, because you need to constantly be watching — and timing — the market, waiting for your next move. It isn’t for beginner, or casual, investors.
If you’re interested in day trading, our recommendation is to allocate a small portion of your overall portfolio to the strategy – no more than 5% or 10%, tops. That way, if you lose money — as you are likely to do, at least at first — those losses are at least capped. The rest of your portfolio should be invested in long-term, diversified investments like low-cost index funds.
