More and more people get involved in trading every single day. Naturally, most of them think that doing so will pave their way to wealth. However, we have to take into account more than just the individual effects that trading has on people’s lives – such as the effects it has on the overall economy as well.
One particular type of trading is considered somewhat harmful to the economy in general. Namely, here we’re referring to daily or day trading. The majority of forex brokers provide this trading option but not many people know of its negative effects.
What is Day Trading?
Day trading, just as the name implies, means trading positions within a platform with the scope to close all positions by the end of the day. Obviously, traders like day trading because, by engaging in it, they avoid the overnight volatility of the market.
Still, even if the overnight risk is cancelled out, day trading remains one of the most high-risk ways of trading out there, and is often not a good fit for beginners.
Moreover, it is also essential to mention that day trading is not comparable to investing. With day trading, the trader simply bets on the difference between the opening and closing prices of a position.
Why is Day Trading Considered Harmful?
Just as with many other things, day trading is not only harmful. It comes with both advantages and disadvantages. These have to be analyzed by the trader so that they can determine whether this type of trading is profitable for them or if it might ruin their financial situation.
- Beginners or inexperienced traders can get into debt without even realizing it while day trading. Due to its characteristics of high-stress and high-mobility, one might be forced to open and close hundreds of positions in a single day.
- Naturally, debt creates a problem for the economy overall. Unpaid debt reflects onto a country’s economy. Therefore, taking into account that only 1% of day trades are successful (more or less), one can easily realize why the economy will suffer in the long run.
- Another issue is the fact that day trading is often advertised as highly successful by certain individuals. Not even reputed forex brokers go as far as to highly recommend this style of trading. As a result, funds that could be circulated within the local economy are lost mostly due to speculation or dreams.
The Major Issue
What conclusion can we draw from all of the above?
Well, it’s safe to say that day trading, in most cases, can be seen as a casino game, with no clear path to victory. This leads to a slow increase in the poverty rate throughout the world. Obviously, the brokers that create artificial winning positions for their traders are not helpful either.
Ultimately, a poorer population leads to a poor economy overall.
The Bottom Line
In the end, day trading is an issue when in the hands of inexperienced traders. This is because the professionals know how to manage multiple positions in a single day and, most importantly, they don’t expect massive wins or take massive risks.
The professional trader knows to turn to investing and other options for big profits, instead of relying fully on day trading. Keep in mind that a diverse portfolio is the trader’s key to success and to avoiding debt!