| The social media driven day trading frenzy around GameStop was inevitable.
The number of novice investors day trading has skyrocketed during the coronavirus pandemic, and that investment surge has created a huge rally in global equities.
Basically, people are stuck at home, have some free time and have turned to playing the stock market on various trading platforms (especially millennials), hoping to hit some quick, big returns on their investments. Unfortunately, many of these stock market newbies suffer from fear of missing out and think day trading is a get-rich-quick scheme. It's not.
Truth be told, day trading is hard work and is very risky. It's different from traditional investing and it's not for the faint of heart. A good friend who is a very successful day trader told me when you start out you need to know what you actually don't know.
She said you need to recognize the learning curve and to question everything before making an investment. And that means not getting caught up in the hype.
To that point, beware of any claims of hot tips from "experts." Relying on investment advice from day trading platforms, websites and other social media outlets can be hazardous to your financial health. If it sounds too good to be true, it probably is. Do your homework and research a reputable trading system. Once you find one, stick with it.
Day trading isn't for everyone, and it takes a certain type of person to be able to handle the market's daily volatile rollercoaster ride. My friend also said she knows she has the temperament for day trading and knows herself as an investor and understands her risk tolerance.
We have heard and read many stories about how day trading has made some people a lot of money in a short period of time. On the flip side, day trading has left many others with huge losses and placed them in bad financial shape. Those are the stories you don't often hear about.
So, if you think you want to dabble with day trading, make sure you understand the risks, assess if you have the stomach to handle it and that you have the investment discipline that is required. And most important, only invest what you can actually afford to lose.
For more key stuff like this, please follow me on Twitter @jimpavia and check out CNBC's Financial Advisor Hub and CNBC + Acorns Invest in You: Ready. Set. Grow. |
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