Which is more Profitable Investing or Day Trading – Day trading

To really answer the question of which is more profitable, we have to first understand what the difference between the two are.  Both day trading and investing have things in common, which is buying  stock in a company that you believe will have a significant change in the outcome of the investment at a given time.  The difference is the time that you hold on to that investment.  When making a long-term investment, you are setting money aside for a number of months or years in the hope of a good return.  When doing day trading, you are looking to purchase a stock option at its lowest point and then sell it for profit when it hits the ceiling

This is why day trading can be more profitable than just investing.  Let’s first look at 2 people, an investor and a day trader.  George, the investor puts a lump sum investment of 10,000 dollars in a stock.  George bought 500 shares of stock ABCQ which was 20 dollars a share.  George holds on to that stock for 20 years and the stock eventually rises to 50 dollars a share.  During that period the stock had its ups and downs, but overall ended up more than what he purchased the stock at.  George’s return in investment is 25000, a net profit of 15000. 

John is a day trader.  He has 10000 to invest in stocks and options.  He invests 10000 in a company that he know in a few weeks will make an announcement of higher than expected revenue.  He gets in early and buys a stock at 10 dollars a share.  That share rallied to 13.50  John sells and now has a profit of 3500 dollars just for that day.  John has a hunch that company X is going to get bought by a larger company and decides to throw 13500 into their stock. A week goes by. Then the company he invested announces they are considering a purchase but have not agreed to anything yet.  The news alone sends a buying frenzy of the stock from 6 to 10 dollars a share.  John is now at 22500. 

Now the illustration given above is not complete data as there is costs involved in buying and selling the stock, but overall, you can see how the risk has its rewards.  The key to doing day trading involves researching thousands of companies and knowing how the market acts.  There are things beyond our control that do affect the market.  Natural disasters, war, bubbles, all play a role in the U.S. Economy.  When the economy potentially goes bad, day traders can profit very well from this too.  The market has always recovered from some disaster or another, and those who get in when the market is low and out when the market is high reap much more rewards than those who just invest in a few stocks for a long period. 

Day traders may also have the potential to not get back anything they gamble on, which is why a good day trader doesn’t just put money into a company just because.  A day trader also studies market signs and charts on companies he is looking to invest in for a specific period.  Day traders have to focus on stocks and futures, while an investor has another income and just has his bank account auto-draft a certain amount of money per month into a retirement/savings plan.  The investor may be wiser, but the trader is the more profitable of the two.