Most of the clients I dealt with as a Stockbroker had Reasonable Expectations about the Performance of their Securities Accounts. But, Occasionally, I had to deal with Day Traders. They Bragged about their Results….However, I could see their Account History…I could see how they Exaggerated their Wins and Forgot to Mention their Huge Losses…
The Only Investment Return that Counts is Your “Real Return.”
1. After Taxes
2. After Inflation
3. After Expenses
Day Traders must pay Taxes on any Profits at Short-Term Capital Gain Rates. Their Tax Cost is Much Greater than Buy and Hold Investors who Pay at Much Lower Long-Term Capital Gain Rates.
Day Traders pay Transaction Costs when they Buy and again when they Sell. At my Former Firm they paid $8.95 to Buy a Stock Online. Another $8.95 to Sell It. Plus, an Extra $25 Each Time they needed a Stockbroker to Execute a Trade.
Transaction Costs Example
$ 8.95 Buy Commission
$25.00 Broker Assistance
$ 8.95 Sell Commission
$25.00 Broker Assistance
$67.90. Total Per Transaction
Most Day Traders Place Multiple Trades when the Stock Market is Open. One of my Former Firm’s Clients placed Thousands of Stock Trades Each Year!
Day Trading Firms will Try to Sell You Their Expensive Proprietary Trading Software. They Tout Impressive-Looking Performance Records designed to make Traders Think they are sure to make “Guaranteed Profits.” Those Records are Typically Derived by “Back-Testing” the Program against Past Data. In Other Words…the Promoters Go Back through Old Trading Records and see what would have worked in the Past!
Day Trading Firms let Prospects “Practice” with “Dummy Accounts.” But, “Dummy Accounts” can Breed False Confidence. It’s One Thing to Trade with Play Money…It’s Totally Different to Wave Goodbye to a Big Chunk of Cash You Used to Own! After All, Crashing in a Flight Simulator is Much Different than Crashing a Real Airplane!
The Day Trader Must Live Off His Profits from Trading as well as Risk His Own Capital and Borrowed Money Everyday to Make Those Profits…This Combination of High Risk, High Transaction Costs, and High Taxes prompted a Warning From the U.S. Securities and Exchange Commission:
“Most Individual Investors Do Not Have the Wealth, the Time, or the Temperament to Make Money and to Sustain the Devastating Losses that Day Trading Can Bring.”
The People Who Make the Most Money from Day Trading are those Running Day Trading Firms. The One Thing They Will Be Able to Teach You:
“How Do You Make a Small Fortune Trading Stocks? Start With a Large Fortune…”
So What Do You Think? Do You Know Someone Who Has Had a Good or Bad Experience Day Trading? I Would Like to Hear From You. Feel Free to Share my Blog Posts on Your Social Networks!