Stocks and security exchange is a great way to make money. Although, being aware of the risks associated with day trading is also very important.
Many authorities in the United States regulate the exchange of securities, and serve the function of investor protection. Though their work is largely related to enforcing rules, and moderating unethical and illegal activities, regulatory organizations such as the United States Securities and Exchange Commission, Financial Industry Regulatory Authority (FINRA), and the National Association Of Securities Dealers (NASD), have undertaken quite a few initiatives to help generate awareness regarding the risks involved in day trading.
What is Day Trading?
Day trading is a strategy or principle followed by investors and traders to make profits in their investments. It basically involves the purchase and sale (trade) of financial instruments, securities, and stocks through a lawful intermediary, or stock exchanges. Thus, the traders follow short-term price fluctuations in the market in order to generate a profit, by purchasing and selling commodities within a day. There is however, a tremendous element of uncertainty in this market, and probability of incurring a loss is rather high. Thus, apart from combating the negative elements of the securities market, regulatory authorities strive to spread awareness about this probability, and permutation of loss in the process of day trading. Stocks and securities in any economy are generally traded through intermediary agents, who are responsible for advising their investors on risks related to their investments.
Profits on this platform are hard to generate, and investors have to invest smartly in order to manage risks, and drive a substantial equity to their dematerialized account.
Incurring Losses: There is a common misconception among new and amateur investors, that securities and stock trading is a way to earn easy money. Well, that is certainly false, and enduring a loss is a skill that must be mastered, in order to survive in this market. Governing bodies such as FINRA, and the U.S. Securities and Exchange Commission, advise investors who have deposited equity with a broker, to never count it as an asset, and also, never count the income as profit.
Risk of Negative Equity: Investors start with the equity that they have already earned, with an aim to gain as much more of it as possible, before the market closes. The biggest risk while achieving this goal is the negation of existing equity.
Using Up Equity and its Margin: There is a certain limit that a person can avail while investing, that being $25,000. Now, if a person purchases $10,000 worth of stock, and the price of which falls to $7,000, then, the trader faces an imminent threat of losing $3,000, and has to somehow recover this equity before the market closes.
Software and Misleading Figures: There are quite some software and misleading commodity figures that plague this market. The misleading figures that are depicted by the media are lawful, but many amateurs are unable to grasp its real significance.
Apart from these, there are a number of aspects which also need to be looked into, like being aware of the different compliance and trade requirements.