Pros amp Cons Of Day Trading Vs Swing Trading Active traders often group themselves into two camps: the day traders and the swing traders. Both seek to profit from short-term stock movements (versus long-term investments), but which trading strategy is the better one Below, we explore the pros and cons of day trading versus swing trading. Day trading, as the name suggests, involves making dozens of trades in a single day, based on technical analysis and sophisticated charting systems. The day trader s objective is to make a living from trading stocks, commodities or currencies, by making small profits on numerous trades and capping losses on unprofitable trades. Day traders typically do not keep any positions or own any securities overnight. Swing trading is based on identifying swings in stocks, commodities, and currencies that take place over a period of days. A swing trade may take a few days to a few weeks to work out. Unlike a day trader, a swing trader is not likely to make such trading a full-time career. Day Trading Pros and Cons Potential to make substantial profits . The biggest lure of day trading is the potential for spectacular profits. But this is may only be a possibility for the rare individual who possesses all the traitssuch as decisiveness, discipline and diligencerequired to become a successful day trader . Be your own boss . The day trader works alone, independent from the whims of corporate bigwigs. He can have a flexible working schedule, take time off whenever needed, and work at his own pace, unlike someone on the corporate treadmill. Never a dull moment . Long-time day traders love the thrill of pitting their wits against the market and other professionals day in and day out. The adrenaline rush from rapid-fire trading is something that not many traders will admit to, but is a big factor in their decision to make a living from trading, compared with spending their days selling widgets or poring over numbers in an office cubicle. Expensive education not required . For many jobs in finance, having the right degree from the right university is a prerequisite just for an interview. Day trading, in contrast, does not require an expensive education from an Ivy League school. While there are no formal educational requirements for becoming a day trader ( see Best Undergraduate Degrees for Day Traders ), courses in technical analysis and computerized trading may be very helpful. Self-employment benefits . As a self-employed individual, a day trader can write off certain expenses for tax purposes, which cannot be claimed by an employed individual. Risk of substantial losses . In an investor publication titled Day Trading: Your Dollars at Risk , the U. S. Securities and Exchange Commission points out that days traders typically suffer financial losses in their first months of trading, and many never graduate to profit-making status. While the SEC cautions that day traders should only risk money they can afford to lose, the reality is that many day traders incur huge losses on borrowed monies, either through margined trades or capital borrowed from family or other sources. These losses may not only curtail their day trading career, but also put them in substantial debt. Significant start-up and ongoing costs . Day traders have to compete with high-frequency traders. hedge funds. and other market professionals who spend millions to gain trading advantages. In this environment, a day trader has little choice but to spend heavily on a trading platform. charting software, state-of-the-art computers, and the like. Ongoing expenses include costs for obtaining live price quotes and commission expenses that can add up because of the volume of trades. Be your own boss . To really make a go at it, a trader must quit his day job and give up his steady monthly paycheck. From then on, the day trader must depend entirely on his own skill and efforts to generate enough profit to pay the bills and enjoy a decent lifestyle. High stress and risk of burnout . Day trading is stressful because of the need to watch multiple screens to spot trading opportunities, and then act quickly to exploit them. This has to be done day after day, and the requirement for such a high degree of focus and concentration can often lead to burnout. Swing Trading Pros and Cons Does not have to be your full-time job . Anyone with the knowledge and investment capital can try swing trading. Because of the longer timeframe (from days to weeks as opposed to minutes and hours), trades do not have to be constantly monitored. A swing trader can even maintain a separate full-time job (as long as he or she is not checking trading screens all the time at work). Potential for significant profits . Trades generally need time to work out, and keeping a trade open for a few days or weeks may result in higher profits than trading in and out of the same security multiple times a day. Constant monitoring not required . The swing trader can set stop losses in place. While there is a risk of a stop being executed at an unfavorable price, it beats the constant monitoring of all open positions that is a feature of day trading. Less stress and risk of burnout . Since swing trading is seldom a full-time job, there is much less chance of burnout through stress. Swing traders usually have a regular job or other source of income from which they can offset or mitigate trading losses. Expensive investment not required . Swing trading can be done with just one computer and conventional trading tools. It does not require the state-of-the-art technology of day trading. Higher margin requirements . Since swing trading usually involves positions held at least overnight, margin requirements are higher. Maximum leverage is usually two times ones capital. Compare this with day trading where margins are four times ones capital. Risk of substantial losses . As with any style of trading, swing trading can also result in substantial losses. Because swing traders hold their positions for longer than day traders, they also run the risk of larger losses. Day Trading or Swing Trading Day trading and swing trading each have advantages and drawbacks. Neither strategy is better than the other, and traders should choose the approach that works best for their skills, preferences, and lifestyle. Day trading is better suited for individuals who are passionate about trading full-time, and possess the three Dsdecisiveness, discipline, and diligence (prerequisites for successful day trading). Day trading success also requires an advanced understanding of technical trading and charting. Since day trading is intense and stressful, traders should be able to stay calm and control their emotions under fire. Day trading involves risktraders should be prepared to sometimes walk away with 100 percent losses. Swing trading, on the other hand, does not require such a formidable set of traits. Since swing trading can be undertaken by anyone with some investment capital and does not requires full-time attention, it is a viable option for traders who want to keep their full-time jobs, but also dabble in the markets. Swing traders should also be able to apply a combination of fundamental and technical analysis. rather than technical analysis alone. Day trading and swing trading should both be left to experienced traders who can accept the risks of trading. Day trading is a full-time job that requires complete concentration and intense focus. Swing trading is far less demanding. Its the appropriate choice for those who want to try their hand at trading without becoming totally immersed in it. Pros and Cons of Forex Trading Pros and Cons of Forex Trading Forex trading is a popular form of investment that more people are turning to with hopes of earning big money. Forex is short for foreign exchange. In the foreign exchange market, different currencies are traded based on the exchange rates. In the past, the forex market was mainly reserved for the wealthy banks. Today, however, practically anyone can get into forex trading, since it doesnt take a lot of capital to do so. There also brokers and online platforms you can go to for forex trading. Before you start looking for a forex broker, though, you should get to know the advantages and disadvantages of forex trading. Read on to learn about the pros and cons of foreign exchange trading and how you can succeed in the market. Pros of forex trading Leverage - Foreign exchange markets give investors a lot of leverage when trading. In other words, a small amount of capital can go a long way. In fact, some markets allow a leverage ratio of up to 50:1 or 100:1. In other words, a single dollar can be worth up to 50 or 100 when trading. This means that you can earn a lot of money with a relatively small investment. Round-the-clock trading - Another advantage of forex trading is that the markets are open 24 hours a day, five days a week. The markets are only closed on weekends based on a standard time. This means that you can trade at any time of day or night that is comfortable for you. Lower fees - One of the biggest advantages of the forex market is that there are fewer fees involved, in comparison to other markets like the stock exchange. In forex trading, fees are normally limited to the spread (the difference in value between the two currencies being traded) of the transaction. Lower fees means that you have more money to save, invest, or spend on other things. Online services and tools - Another main advantage when it comes to forex trading is that you can trade from the comfort of your own home. Online services and tools have made it easy for even beginners to understand, monitor, and analyze the market. Furthermore, the Internet allows you to start trading within a few clicks. Make use of all of the tools and services available to you. This will put you in the best position to make income in the forex market. Automated trading software - Another advantage of forex trading is that you can use automated trading software that can make transactions for you depending on how you programmed the software. This makes it easier to make trades at the right time and in the right situations. Cons of forex trading The forex market is fast and volatile. One of the biggest disadvantages of the forex market is that it is fast and volatile. Although this means that you can make money fast, the downside is that you can lose money just as fast as well. Currency values can change without warning, making it difficult to accurately predict where to invest your money. Leverage can work against you. Although good leverage can help you make bigger investments with smaller capital, it can also lead to losses that are greater than what you initially invested. Just as you can make 100 for every 1 of capital, you can also lose that same amount. Online connections may fail. Another downside of forex trading is that your Internet connection may fail, causing you more problems. Some of the problems that you may encounter if your Internet connection goes out include incomplete transactions and inability to monitor the market. In such cases, you will be held solely responsible for the effects of disrupted Internet connection. Other disadvantages include: Scammers - Perhaps the most dangerous downside of forex trading is that there are many scammers out there looking to steal your identity, your money, or your financial information. Scams range from phishing scams and hacking scams to fraudulent companies and fake software. Its important to be very careful when dealing with others on the Internet. Only deal with well known, reputable, and high rated companies, brokers, and markets. 24-hour market changes - Although a 24-hour trade market can be convenient, it can also work against you. The fact that the market works around the clock means that prices and values can change at any time of the day. The market continues to move even when you are asleep or too busy to manage your forex investments. This is where the automated software comes in handy. Still, it can be dangerous to rely too much on automated software. Making the forex trading market work for you Considering the advantages and disadvantages listed above, the most important consideration when it comes to forex trading is how well you manage your investments. Despite the disadvantages of forex trading, you can still make good income as long as you take the time and effort to get to know the market. Just like any other investment, knowledge and experience are essential for success in forex trading. Prepare well by doing some research and learning about the market and how it works. Make a plan that will help you utilize your capital to the fullest and make some great returns. Here are some tips to succeed in forex trading: - Dont put too much trust into other advisors and experts. Although they can give you great analysis and evaluations of the market, it is up to you to come up with a sound strategy for trading. - Only choose online forex trading websites that you are most comfortable with. Make use of reviews and ratings to point you in the right direction, then choose the site you want to use based on your own preferences. - Try not to let your emotions get involved when you are trading. This can be hard at first, but with practice, you can start trading like the pros. Remember that with the promise of bigger returns, forex trading also comes with greater risks. And so, you need time to go over every detail and from there, make a sound decision that will turn your investment into long-term success. The Pros amp Cons Of A Forex Trading Career Owing to its high liquidity. 247 schedule, and easy accessibility, forex trading has emerged as a popular career, especially for people with a financial background. Being your own boss with the comforts of making money using your laptopmobile when its convenient for you is enough motivation for both young graduates and experienced professionals to consider forex trading as a career. However, forex trading has its disadvantages, as well as its advantages. (See related: Forex Tutorial: Introduction to Currency Trading .) Low Costs . Forex trading can have very low costs (brokerage and commissions). There are no commissions in a real sense most forex brokers make profits from the spreads between forex currencies. Hence, one does not have to worry about including separate brokerage charges, eliminating an overhead. Compare that to equity or other securities trading where the brokerage structure varies widely and a trader must take such fees into account. (See related: Forex Broker Guide .) Suits Varying Trading Styles . The forex markets run all day, enabling trades at ones convenience, which is very advantageous to short-term traders who tend to take positions over short durations (say a few minutes to a few hours). Few traders makes trades during complete off-hours. For example, Australias daytime is the nighttime for the East Coast of the US. A US-based trader may trade AUD during US business hours, as little development is expected and prices are in stable range during such off-hours for AUD. Such traders adopt high-volume, low-profit trading strategies. as they have little profit margins due to a lack of developments specific to forex markets. Instead, they attempt to make profits on relatively stable low volatility duration and compensate with high volume trades. Traders can also take long-term positions, which can last from days to several weeks forex trading is very accommodating in this way. (See related: How To Become A Successful Forex Trader .) Offers Very High Liquidity: Compared with any other financial markets. the forex market has the largest number of market participants. This provides highest level of liquidity, which means even large orders of currency trades are easily filled efficiently without any large price deviations. This eliminates the possibility of price manipulation and price anomalies. thereby enabling tighter spreads that lead to more efficient pricing. One need not worry about the high volatility during opening and closing hours, or stagnant price ranges during the afternoons, which are trademarks of equity markets. Unless major events are expected, one can observe similar price patterns (of high, mid or low volatility) throughout the non-stop trading. No Central Exchange: Being an over-the-counter market operating across the globe, there is no central exchange or regulator for the forex market. Various countries central banks occasionally interfere as needed, but these are rare events, occurring under extreme conditions. Most such developments are already perceived and priced into the market. Such a decentralized and deregulated market helps avoid any sudden surprises. Compare that to equity markets, where a company can suddenly declare a dividend or report huge losses, leading to huge price changes. In addition, the chances of insider trading are almost nil (especially on major currency pairs ), as there are no insiders in the forex market, which is dependent on global factors and perceived developments. Such deregulation also helps keep costs low. Orders are directly placed with the broker who executes it on their own. Another advantage of deregulated markets is the ability to take short positions. something that is banned for a few security classes in other markets. Volatility Is a Traders Friend: The major currencies frequently display high price swings. If trades are placed wisely, high volatility assists in enormous profit making opportunities. Variety Of Pairs To Trade: There are 28 major currency pairs involving eight major currencies. Criteria for choosing a pair can be convenient timing, volatility patterns, or economic developments. A forex trader who loves volatility can easily switch from one currency pair to the other. (See related: Top 8 Most Tradable Currencies .) Low Capital Requirements: Due to tight spreads in terms of pips. one can easily start forex trading with a small amount of initial capital. Without more capital, it may not be possible to trade in other markets (like equity, futures or options). Availability of margin trading with high leverage factor (up to 50-to-1) comes as the icing on the cake for forex trades. While trading on such high margins comes with its own risks, it also makes it easier to get better profit potential with limited capital. Ease . There are hundreds of forex technical indicators to draw on for short-term trades, and several fundamental analysis theories and tools for long-term forex trading, creating enormous choice for traders with varying levels of experiences to make a swift entry into forex trading. In essence, there are lots of advantages to forex trading as a career, but there are disadvantages as well. Lack of Transparency . Due to the deregulated nature of the forex market dominated by brokers, one actually trades against professionals. Being broker-driven means that the forex market may not be fully transparent. A trader may not have any control on how his trade order gets fulfilled, may not get the best price, or may get limited views on trading quotes as provided only by his selected broker. A simple solution is to deal only with regulated brokers who fall within purview of broker regulators. The market may not be under the control of the regulators, but the activities of brokers are. Complex Price Determination Process . Forex rates are influenced by multiple factors, primarily global politics or economics that can be difficult to analyze information and draw reliable conclusions to trade on. Most forex trading happens on technical indicators. which is the primary reason for the high volatility in forex markets. Getting the technicals wrong will result in a loss. (See related: Forex Technical Analysis .) High Risk, High Leverage: Forex trading is available on high leverage, meaning one can get profitloss exposure multiple times of the trading capital. Forex markets allow leverage of 50:1, so one needs to have only 1 to take a forex position worth 50. While a trader can benefit from leverage, a loss is magnified. Forex trading can easily turn into a loss-making nightmare, unless one has a robust knowledge of leverage, an efficient capital allocation scheme, and strong control over emotions (e. g. the willingness to cut losses short). Self - Directed Learning . In the stock market. a trader can seek professional assistance from portfolio managers. trade advisors, and relationship managers. Forex traders are completely on their own with little or no assistance. Disciplined and continuous self-directed learning is a must throughout the trading career. Most beginners quit during the initial phase, primarily because of losses suffered due to limited forex trading knowledge and improper trading. High Volatility: With no control over macro-economic and geopolitical developments, one can easily suffer huge losses in the highly volatile forex market. If things go wrong with a particular stock, shareholders can put pressure on management to initiate required changes, and they can alternatively approach regulators. Forex traders have nowhere to go. When Iceland went bankrupt, forex traders holding Icelandic krona could only watch. The alleged scams involving the Iraqi dinar exist because there is no authority to control its valuations. (Related: Is Iraqi Dinar a Wise Investment ) The 247 markets make it difficult to regularly monitor prices and volatility. The best approach is to keep strict stop losses for all forex trades and trade systematically through a well-planned approach. Often perceived as easy moneymaking career, forex trading is actually quite difficult, though highly engaging. Perseverance, continuous learning, efficient capital management techniques, the ability to take risks, and a robust trading plan are needed to be a successful forex trader. Proscons of trading FX futures Good day to you all I have a question on my mind: what are the advantages disadvantages of trading FX as futures Futures market seems to be a safer place to be as it is regulated, brokers cant mess with your spread and deposits are in a safer account. It is possible to trade micro (10.000) lots as futures too, so why is it so seldom too see someone to trade FX futures Your experience is very welcome. Thank you Yeah. Well. you know, thats just like. your opinion man - Big Lebowski Commercial Member Joined Jan 2013 1,169 Posts Good day to you all I have a question on my mind: what are the advantages disadvantages of trading FX as futures Futures market seems to be a safer place to be as it is regulated, brokers cant mess with your spread and deposits are in a safer account. It is possible to trade micro (10.000) lots as futures too, so why is it so seldom too see someone to trade FX futures Your experience is very welcome. Thank you PROS ------ 1) entries can be more precise and with one pip of spread in the major, most liquid pairs (EURUSD, GBPUSD, ect.), slippage is small 2) futures market are regulated, while brokers can do a lot of quottricksquot 3) no overnight carryover costs, no borrowing costs CONS ------ 1) less option for leverage (maybe), you can consider only major futures (e. s. 6E), half sized (e. g. E7) and CME micro FX futures (e. g. M6E) 2) rolling over futures on longer swings can be painful markets traded by programsHFT offer a significant trading edge.
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