For several months now, day trading has been the talk of the town, with financial experts terming it “the latest investing craze”. It’s everywhere — amateur and expert day traders taking to social platforms to brag about their huge trading gains, and others convincing the masses about trading as the quickest route to financial freedom.
All the noise seems to have worked. Interest towards this activity has soared recently, with online trading sites witnessing a spike in their customer base. While day trading presents an opportunity for people to try their hands at a get-rich-quick business, to the problem gambler, the prospect of quick money marks the beginning of another downfall.
Day Trading in the UK: Facts and Statistics
Day trading is quite a popular full time and pastime activity for people in the UK, as evident through these findings:
- The UK takes the lead as the nation with the highest number of online day traders in Europe. 1 in every 100 Brits does trading
- Almost 1.8 people in the UK turned to trading when the coronavirus pandemic struck
- Not more than 1% of day traders in the UK earn over ￡75,000 a year— meaning only a handful fall under the category of profitable traders
In addition, evidence shows that overall, traders with a consistent negative track record will still carry on with trading.
Is Day Trading a Form of Gambling?
Critics of the day trading industry claim that online trading sites are gambling “parlours” masquerading as reputable businesses — and they aren’t far from the truth. The similarities between gambling and day trading can’t be ignored. By nature, the outcome of a gambling activity is a matter of luck. The probabilities are either winning or seriously failing (but the anticipation is often to win). In the same way, a day trader will either walk away with profits or lose money altogether to the stock market – there’s no in-between. With day trading, the probabilities are that the random stock price movements will trend in the direction a day trader wants, or not.
A trader will “chase” losses with the hope of eventually making a kill — which is also an undisputed fact about gambling. A win or a loss is never enough, and so in most cases, it’s trade after trade. In addition, the unexpected gains from a high-risk trade may generate a dopamine-induced rush that compels a trader to keep at it.
Since most traders are obsessed with the idea of earning several pounds more after trading, they’re likely to commit a good amount to a single trade.
What Makes Day Trading Problematic?
Contrary to what many people think, day trading isn’t a reliable way of consistently making huge profits. The stock market is inherently unstable, so the possibility of making significant losses is much higher. Day trading losses create desperation to fix the failure with more risk-taking.
If this activity doesn’t hook you to the thrill of easy and big wins, it will leave you stuck in the cycle of recouping the money lost. It encourages regular engagement. For most day traders, giving up the idea of making money through trading is unthinkable.
This activity prompts inexperienced traders to make dozens of trades a day despite racking up losses repeatedly. What starts as a harmless and fun way of improving one’s finances can quickly build up into self-destructive behaviour.
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How Is Day Trading Different from Investing?
Investing takes a more strategic approach — For instance, aligning investment decisions with one’s financial goals, carefully mapping out the earning potential of stocks before investing, buying and holding stocks much longer to achieve better earnings, setting an appropriate level of risk tolerance, building a diversified investment portfolio to minimise heavy losses from a single investment, among others.
Investing is a reliable, slow-but-sure way of accumulating wealth for the long term. The same can’t be said about trading. In the simplest terms, day trading involves buying stocks, holding them for a short time until the prices rise, then selling them (before the close of a trading day) with the hope of ripping massive profits from the stock price changes that occur in minutes or hours.
Since stock prices can drop dramatically, it’s not unusual for someone to lose almost their entire savings in a single trade. The risks associated with trading are much higher than with investing. Day trading rarely takes a strategic approach since the main focus is on quickly identifying stocks with the potential to rise higher in price.
Signs You May Have Developed a Problem With Day Trading
There are several red flags that signal your trading habit is off track. They include:
- Being constantly preoccupied with the thoughts of engaging in trading and experiencing unpleasant emotions if you miss a day’s trade
- Spending odd hours online monitoring stock price fluctuations and researching other financial instruments to trade in
- Setting limits on how much to spend in trading but consistently failing to stick to them
- Feeling emotionally tied to trading — For instance, getting restless when you quit or try to cut down on your trading activities.
- Attempting to recover losses by trading impulsively
- It’s affected your personal and work life. For instance, losing interest in hobbies you previously enjoyed, difficulties concentrating at work, changes in sleeping patterns, and neglecting close relationships and obligations to pursue trading.
- Lying to loved ones about the extent of your trading activities, including the amount you’ve lost
- Borrowing money or using your credit card to remain an active day trader
- Experiencing feelings of depression or thoughts of self-harm because of the financial losses
The harsh reality is that day trading can easily take a problem gambler down another disastrous and addictive path. It may drive problem gamblers to riskier trading behaviours — whereby, on one hand is the fear of failure, and on the other is the excitement of closing a profitable trade. For problem gamblers, participating in trading is akin to putting out a fire with gasoline — their self-destructive behaviour will only worsen.