Last Updated on 21 September, 2020 by Samuelsson
With the increasing access to technology, more and more people are now searching for ways to earn money from the internet, through practices like day trading. Day Trading is the speculation and trading of financial market instruments with a holding period of one day at most.
Day trading is by many considered more a hobby than a job. However, it depends on who you ask. Day traders still will have to pay taxes, and it is a viable way of making a living for those few that learn to master it well.
Many people have a perception that day trading is not a viable full-time career option. Sorry to burst their bubble but yes, day trading can be and is a full-time career for some people. Earlier many were skeptical about whether being a freelancer could be a viable career option. But today it is safe to say it is!
The Differences Between Day Trading and A Normal Job
Let’s see the difference between a normal job and being a day trader
1. You need to know that just because you can work at home being a day trader, it nowhere means that there is less work or less time required to do your work. You have to be willing to put in hours as you do in a regular job. The perks that this career gives are that you can be your own boss and work from wherever you want to. Such a career is always very beneficial when you want to work from your home or maybe want to travel without having to worry about having a conventional job to cover your expenses.
2. As a daytrader, you will have to pay the taxes yourself, while that normally is taken care of for you in a normal job.
3. As a day trader. you are responsible for your own learning and always keeping yourself up to date. The markets change constantly, and there is no one there to tell you what you need to focus on right now! As with the first point, you need to be focused on the things that need to be done!
4. In your normal job, you have colleagues to talk to and socialize with. Being a daytrader is not the same and could become lonely in the long run.
After reading about the main differences, maybe you are tempted to start your own day trading career? Here are some answers to questions that new traders tend to ask!
Is Day Trading Illegal?
Due to low capital availability to a starter day trader, it is common to work with leverage. While day trading is not illegal or unethical, it is highly risky. A day trader borrows money and trades the market with the hope of reaping high rewards. However, this is sometimes not the case. Losses are a part of the package, and not using too much leverage is paramount to not get wiped in the long run!
Are There Any Regional Differences to Be Considered?
There are some countries in the world where choosing day trading as a career is more beneficial. Countries with a low cost of living are more conducive for you to choose this path for your career. With little competition and low expenses, you can be able to save more money that you make if you are low on capital. Conversely, in countries where the cost of living is high, it can be a bit more challenging to sustain your standard of living.
What you also need to consider is the competition. In more developed markets there is usually a lot of competition, which makes the market more efficient and hard to trade.
Is Day trading Considered a Job By US Tax Authorities?
Yes, at least the income made by day trading is taxable. There is surely no way of having any tax free trading.
Day trading taxes could be quite complicated. Your tax structure will depend on the market you are trading in and the tax system you fall under. It is also different based on your geographic location.
For example, in the UK, the forex and CFDs are highly speculative due to no underlying asset. Therefore in some very few cases, you can be saved from paying capital gain tax. However, since you are earning an income for your living you might still be entitled to pay income tax.
As you see, taxes can be very complicated. You need to carefully do your homework when you enter day trading to make sure to know what category you fall under, and what taxes are applicable to the market you are trading in.
What Are People Day Trading In?
You can day trade a variety of different markets, and they all have their quirks and special characteristics. As such, it is important to choose a market that you manage well and grow fond of!
Here are some of the most common markets for daytrading:
- Penny stocks
Tricks of the Trade
- Beware of schemes or individual who promise to make you rich overnight, these are usually the ones who are trying you to make a hasty decision into buying their offers. Be sure to do your homework for every purchase or sale.
- Always move forward with precaution. If most of the trading is done with borrowed money so you need to be highly careful!
- It is a highly stressful and lonely job. You need to be ready for this before you step into it.
- Watch out for hot tips and expert advice for day trading success and for aching out for possible pitfalls.
Some More Words on Day Trading
- You need to define parameters of success when you begin your day trading career. When people define trading success, they are often somewhat ambiguous in their answer. But in day trading there is no place for ambiguity or vagueness. Before you start you need to accurately jot down your expenses and the money that you need to make monthly to meet your expenses. Only then you can know how much to make so that can save for your future as well.
- Day trading does not provide you with a steady cash flow but if done right, it can make wonders for you in a less amount of time than an ordinary job would do.
- Day trading is a highly stressful career that is not tailored to fit everyone. The most crucial thing is that you have to make trading your prime focus and be realistic with your expectations. There will be no overnight success, and you will struggle both with the psychological and practical aspects before you even learn how to make money!
- Day trading provides you the opportunity to be your own boss but sometimes this also leads to inconsistency in your work that can be highly lethal especially when you are working on borrowed money. Working inconsistency is the major reason for the downfall of many day traders. As a day trader, you cannot afford to be late to grab an opportunity and you simply can’t put on work to the other day.
- There are some valuable perks that attract many people towards day trading but you need to be careful to be attentive to minute details of the market’s flow. There surely is a learning curve to this career and you have to give yourself enough time before you can start to reap the real rewards.
If you enjoyed this article you might also like our other articles answering common questions traders have!