The likes of Netflix and Hulu aren’t the only ones who have actually benefited during the pandemic.
The popularity of day trading — when an investor purchases and usually sells a security within a single selling day — has risen significantly. Experts say that can be credited to two main reasons: younger, digital-savvy generations looking to make money, and a population simply seeking entertainment while locked in at home.
Day trading’s impact was especially evident at the start of the year when stock prices for videogame retailer GameStop Corp. skyrocketed to nearly $500 a share. It eventually leveled off, dropping more than 90% from that inflated price, but a message regarding the power of day traders still resonates. That begs the question — is day trading is for everyone, especially the average person who has little or no experience when it comes to the markets?
Sean Hornbuckle is a financial advisor at Edward Jones in Huntington. His job requires him to wear many different hats, including financial planning, retirement planning, wealth management and, yes, investing. He shared his thoughts on day trading, who it might be most suitable for, what to watch for and what to avoid:
Q: What does someone in your line of work think of day trading?
A: “It’s not the same as investing, which is important to note. It’s an opportunity to make money, but it’s speculative. There’s an immense amount of risk that’s involved. And I think because of short-term success, a lot of people think they’re able to operate in that arena of day trading — and most aren’t. You have to be very financially astute and aware of different taxation rules and guidelines.
“And it doesn’t hurt to have a good bit of wealth with you because you can take enormous losses when day trading. What you’re trying to do is get something at a certain price and then buy it or sell it at a different price, following a trend of an upward or downward trajectory.”
Q: What is the first thing you would advise someone who wants to explore day trading?
A: “I would ask them what’s their goal? Do you have a short-term goal of trying to get some quick cash or are you actually trying to invest and build wealth? Those are two very different things. What are you trying to achieve here?”
Q: Are there certain types of stocks a day trader should gravitate toward and certain ones to avoid?
A: “I would say no. It really, for the most part, I don’t think day trading with high-dividend paying stocks, bluechip companies is always worth the gamble. Because there’s not a whole bunch of movement consistently. One would probably look at something that’s by nature more speculative.”
Q: Are there different styles when it comes to day trading?
A: “Most people who are engaged in day trading aren’t holding things overnight because there’s a risk of price fluctuation. You wouldn’t be able to control that, you wouldn’t be at the wheel, so to speak. Looking at it from the perspective of if one wants to start when the market opens or when the market closes on a daily basis. You think it’s either going to rise in value or decline in value and then try to capitalize on what you think that trend might be.”
Q: Have you been tempted or curious to try day trading?
A: “I would say I’ve thought about it with play money. I live by what I preach: I always tell my clients that if they have money they can afford to lose, then I suggest they get on their app or whatever and do some day trading. But if they have any serious money, that’s probably not the best option for them because you can really lose yourself.
“What happens a lot of times is you’ll find someone will have immediate success and it’s often more luck than skill or knowledge-based — it’s fool’s gold sometimes. They’ve made a few thousand dollars off buying or trading stocks and now think they’re experts. And then that leads to greed, thinking they know that arena more than they do. That can get them into an awful lot of trouble. It’s definitely an option for people, they just have to be cautious of what’s going on.”
Q: How is day trading, or any stock trading, different than gambling?
A: “It’s different. One of my favorite sayings is, ‘Gambling is not day trading and day trading is not investing.’ Gambling is different from the standpoint in that the end result is totally out of your control unless you’re old school with the mafia or point shaving. That thing is completely out of your control. Go the store and buy scratch-off lottery tickets? Out of your control. Powerball? Out of your control. That’s gambling.
“Now, again, there are people in day trading who are phenomenal and they make a ton of money at it. And there’s a certain amount of skill at day trading, education and knowledge — reading different charges, following different trends and those types of things. So there is an actual bit of skill involved.
“But day trading is different than investing. Investing is one trying to build wealth and then it’s done, typically speaking, in a more conservative fashion than day trading.”
Q: What was your take on the GameStop surge? Day trading had a big part to play in it.
A: “Yeah, it did. It was an interesting time in our society, looking at how we operate in different markets. It exposed that we could argue we need a more equitable system when it comes to the have and have-nots — I think that’s probably the biggest takeaway from it.
“But in my industry, one could’ve predicted the massive fallout from it. I didn’t know it was going to happen that quickly, but GameStop was a company going bankrupt and probably not worth the paper it was printed on. There was no rhyme or reason for the value to be inflated to the value it was outside of manipulation.
“In the industry, you know that once it gets up to $300 or $400, then you better tap out. But the novice, they’re thinking it’s going to keep on soaring. Unfortunately, I’m afraid a lot of people got burned.”
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February 28, 2021 at 12:00PM
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What you need to know about day trading - Charleston Gazette-Mail
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