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Which is more profitable: Investing or day trading?
Results so far:
| Investing | 56% | 27 votes | Total: 48 votes | |
| Day trading | 44% | 21 votes |
Investing
by Gavin Plumton
Created on: May 01, 2010
If you watch or read the news, you will often hear about someone who was catapulted from a 9-to-5 job to instant millionaire status by day trading. It makes you wonder if putting your money in long term investments is really the best way to go, and if you should instead be sitting at home and day trading to make your fortune.
What you don’t hear about in the news though are the numerous people who lose their money at day trading. Day trading is just like any other form of gambling. There will be a few big winners, and lots of losers. The only group that is guaranteed to win is the house, which in this case are the stock brokers. Stock brokers charge fees on every transaction, so regardless of which way the stock goes, they already have their pay.
Betting on the wild fluctuations of a single stock on a single day is just as likely to leave you broke as it is to leave you a millionaire. You might as well just head to a casino since your odds of winning are about the same between gambling in a casino and gambling in day trading. However, there is a fairly sure way of making money, and that is long term investments.
With long term investing, you will not be making millions in minutes, but your money will also not be at risk of vanishing in minutes either. Long term investing is stable and the odds of an entire company going bankrupt and destroying your investments is very low. For even better odds you can invest in the whole economy.
This leaves the question though of just how to bet on the whole of the US economy. It does not have a stock you can buy, or bonds you can invest in. This question is exactly why mutual funds were created. By taking just a few stocks from a large numbers of companies you can make a bet on either the economy as a whole or a section of the economy, such as banks or communication companies. With many companies invested in, even if a company goes under, it won’t do much to the mutual fund.
The other easy option is to buy US treasury bonds. Despite the current debate over the US debt, I simply can not imagine a future in which the US defaults on its debts. The only things that could force the US to default would be nuclear war or major meteor strikes, and in either case my biggest concern would not be the value of my treasury bonds. Treasury bonds are a guaranteed investment in the strongest government in the world.
Compare both mutual funds and treasury bonds to the random chance of day trading and it quickly becomes obvious that despite day trading’s ability to win you instant millions, the best option for making money in the long term is careful investments. They provide a stable and constant income without much risk. Investments will, in the long run, make you more money. All you need is a bit of patience.
Learn more about this author, Gavin Plumton.
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Day trading
by Kevin Schlegel
Created on: April 10, 2011
To really answer the question of which is more profitable, we have to first understand what the difference between the two are. Both day trading and investing have things in common, which is buying stock in a company that you believe will have a significant change in the outcome of the investment at a given time. The difference is the time that you hold on to that investment. When making a long-term investment, you are setting money aside for a number of months or years in the hope of a good return. When doing day trading, you are looking to purchase a stock option at its lowest point and then sell it for profit when it hits the ceiling
This is why day trading can be more profitable than just investing. Let's first look at 2 people, an investor and a day trader. George, the investor puts a lump sum investment of 10,000 dollars in a stock. George bought 500 shares of stock ABCQ which was 20 dollars a share. George holds on to that stock for 20 years and the stock eventually rises to 50 dollars a share. During that period the stock had its ups and downs, but overall ended up more than what he purchased the stock at. George's return in investment is 25000, a net profit of 15000.
John is a day trader. He has 10000 to invest in stocks and options. He invests 10000 in a company that he know in a few weeks will make an announcement of higher than expected revenue. He gets in early and buys a stock at 10 dollars a share. That share rallied to 13.50 John sells and now has a profit of 3500 dollars just for that day. John has a hunch that company X is going to get bought by a larger company and decides to throw 13500 into their stock. A week goes by. Then the company he invested announces they are considering a purchase but have not agreed to anything yet. The news alone sends a buying frenzy of the stock from 6 to 10 dollars a share. John is now at 22500.
Now the illustration given above is not complete data as there is costs involved in buying and selling the stock, but overall, you can see how the risk has its rewards. The key to doing day trading involves researching thousands of companies and knowing how the market acts. There are things beyond our control that do affect the market. Natural disasters, war, bubbles, all play a role in the U.S. Economy. When the economy potentially goes bad, day traders can profit very well from this too. The market has always recovered from some disaster or another, and those who get in when the market is low and out when the market is high reap much more rewards than those who just invest in a few stocks for a long period.
Day traders may also have the potential to not get back anything they gamble on, which is why a good day trader doesn't just put money into a company just because. A day trader also studies market signs and charts on companies he is looking to invest in for a specific period. Day traders have to focus on stocks and futures, while an investor has another income and just has his bank account auto-draft a certain amount of money per month into a retirement/savings plan. The investor may be wiser, but the trader is the more profitable of the two.
Learn more about this author, Kevin Schlegel.
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