On Twitter, a man shared a sad story about his cousin Alexander E. Kearns who opened a Robinhood account and started day trading. His saw a $700k balance owed on his account and was so overwhelmed by it all that he took his own life. Below are some tips when navigating day trading and the risks that come with speculating in the stock market.
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Don’t Fall for Get Rich Quick Schemes
For every success story you see about day trading, there are many more failures where traders lose everything and then some like this man did. There are so many gurus and training courses on the Internet stating that you can become rich through trading. Don’t fall for the get rich quick schemes.
Have a Clear Investing Plan
Oftentimes people puchase a stock because they really like the product or they hear buzz about it in the news. It is important to be well educated on the business and their financials before entering into a position. A great way to set clear parameters is by coming up with an investing plan. By having an investing plan with clear objectives, it takes the emotion out of the process and you will pick and manage your stocks based on your goals.
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Use Caution When Dealing with Margin
If you are unexperienced, use caution when dealing with margin. Buying options on margin can be very complicated if you are not experienced and is typically used by investment professionals. Unlike buying and selling a stock, the potential losses can be infinite because the price of a stock does not have a fixed ceiling.
Kearns stated that he did not know that margin was turned on in his Robinhood brokerage account. If you decide to use margin, make sure you understand the standard procedures for the brokerage that you use. Remember that margin is a form of credit that comes with terms and conditions similar to any other credit line. Even if you decide that using margin isn’t right for you, you should be aware of how your brokerage account determines if you qualify, especially if you plan to do option trading.
Building Wealth Takes Time
If you don’t know what you are doing there is a fine line between investing and gambling. It can be tempting to follow the fast money but your long-term stategy will ultimately determine your success.
Investing is a long term strategy and it takes years to build wealth overtime. Set up an investing strategy and stick with it. Doing this will keep you disiplined and takes the emotion out of investing. If you are a long term investor that is interested in placing speculative investments, let it be a small percentage of your portfolio. Also, remember that you should never put more money into the market than you can afford to lose.
Editorial Note: Opinions expressed here are the author’s alone.
