Trading on the stock market must seem like an unattainable goal for most people. Only accessible by experts working in investment banks, earning thousands or even millions of pounds to fund their lavish lifestyles. But increasingly, people from their home computers are starting to have a go, and earning large incomes as they do it.
Most people know about investment bankers. Hollywood films such as ‘The Wolf of Wall Street’ and ‘Wall Street’ portray them living in luxury (for the most part) and earning sums of wealth that seem almost unimaginable. Whilst these characters are supported by the heavyweight behemoths that are investment banks, the tools and techniques that they use are now being harnessed by a wave of individual investors in the UK and elsewhere.
So what are these techniques? In Great Britain it is commonly referred to as day trading uk. It involves purchasing a financial asset (known as a security) and selling it at a higher price later on that day. The vast amount of buying and selling that happens in these markets cause volatile price movements that can be used to your advantage and harnessed for profit. Many platforms (or brokers) that facilitate the trades also offer additional leverage – essentially lending you money to buy more, sell more, and make higher profits. Of course, if you lose money, leveraging will increase how much you have to repay.
For example, after loading up some money onto any given platform, say £1000 it is time to decide which asset to purchase. This could be foreign currency (known as Forex), a stock, or a commodity (gold, oil, etc.). In that way £1000 could be purchased of Forex, perhaps Euros, which would equal around 1167 EUR (at the current exchange rate, 1 GBP = 1.167 EUR). Now that the money is in Euros, an appreciation in the Euro to GBP exchange rate can buy back more GBP with the 1167 EUR than what was initially invested. If the exchange rate moves to 1 GBP = 1.162 EUR, the Euros could be sold for around £1004, a profit of £4. Whilst it does not seem much, day traders can do hundreds of trades per day and make profit from each. As mentioned before, the possibility of leveraging could also allow you to use more capital to make higher profits.
Knowing when to buy and sell largely comes down to price movements. In such a game, volatility is where the money is to be made. Many investment banks or funds employ what is known as algorithmic trading where orders are conducted without a trader needing to be present to watch price movements. The appeal of such a system is clear for large investment vehicles who require a vast amount of trades each day, but some variations such as high-frequency trading have been criticized as exacerbating financial market volatility and even causing crashes.
In an era where interest rates are still near historic lows, utilizing savings to invest in financial assets is becoming a more accessible and attractive option for the individual. Despite most stock markets worldwide falling from their peaks in 2018, the financial markets still offer boundless opportunities to make profits based on small intraday price movements. Caution should always be exercised when investing and diversifying your portfolio across different financial assets is recommended. Starting day trading today could be your first step to becoming the next Gordon Gekko.