There are different ways of attempting to profit in the equity market, but day trading and long-term investing are the two main approaches.

So which method should you go for? Day trading? Long-term? Maybe both?

Before choosing between them or trying both, you first need to understand these two viable forms of securities trading.

What’s Day Trading?

Day trading is a buy-and-sell strategy whereby traders capitalize on short-term market fluctuations in securities’ prices for quick gains.

While they may be trading the same stock as long-term investors, day traders actively invest for income and don’t hold any position overnight. In other words, they buy and sell within the same day.

Contrary to popular misconception, day trading is serious business. It’s not something you just dabble in for fun. Before engaging in day trading, you should understand the performance and economics of leveraged investment strategies and the risks you’re taking.

To day-trade stocks, you will need the services of a broker. You will also be required to maintain a daily account balance (margin). Brokers charge a commission for every trade, so it helps to pay attention to the fees.

Besides studying charts and historical patterns, day traders have to do technical analysis on factors that can drive the stock price up/down – market trends, news, and company announcements (new products launch, acquisitions, mergers, etc.).

What’s Long-Term Investing?

Long-term investing is a buy-and-hold strategy that involves holding on to assets for months or even years with the expectation that they will return profits in the long haul.

Investors are less concerned about market corrections or daily price fluctuations. They believe that time in the market is more favourable than timing the market.

Investors profit from selling assets when the market price changes to their advantage. Their goal is to build wealth gradually through dividends, interests, stock splits, etc.

Before making an investment decision, you need to do proper research about the product and financial performance of the company behind it.

Besides stocks, long-term investors normally invest in mutual funds, index funds and exchange-traded funds (ETFs). Fees can include management fees, exchange fees, account fees, redemption fees and sales loads.

Day Trading vs Long-Term Investing

Whether to become a day trader or a long-term investor depends on a number of factors that include:

#1: Time Commitment

While long-term investing requires you to initially spend a considerable amount of time researching a product and the company behind it, it involves less monitoring. You can check your investment a few times a year, making it a good approach if your job doesn’t allow you to look at the market often.

Day trading requires more attention throughout the day. Day traders have to commit at least 2 hours daily to study the present performance of the company and to monitor movement in stock prices before closing their positions. The first hour of the markets officially opening for trading is commonly one of the best times to take advantage of large price moves.

#2: Skills and Personality Traits

Both investing strategies require discipline as lack of it may lead to losses. This means you will need to be able to overcome the excitement of gains or fear of loss during the time horizons you have given yourself.

Day trading requires quick decision-making. To make profits, you have to take advantage of small price movements. This can be good for you if you enjoy short-term challenges.

For long-term investors, long-term patience is key. You have to be able to resist emotional decisions such as selling stocks when they fail to perform. Premature withdrawals erode gain. Long-term investing might work better for you if you enjoy a “set and forget” mentality.

#3: Risks and Returns

There’s always a risk involved when trading and investing. The important thing is to know how much money you can make compared to how much you can lose.

With day trading, gains compound quickly. Expect to make profits of between 0.5-3 percent per day (10-60 percent per month).

With higher potential returns also comes higher risk. A lot can ensue during the market day that can cause stock and market volatility. If a stock or the market moves in the wrong direction, the result can be quick and substantial financial losses. Only consider day trading if you totally understand the magnitude of the risks involved and can live with those risks.

Most financial experts regard long-term investing as the best way to secure a strong financial future. The long-term investor focuses on diversification, low turnover and risk-adjusted returns.

If, however, you’re unable to hold a security through an extended downturn, you can incur losses.

Conclusion

As a recap, the differences between a day trader and a long-term investor come down to how long you plan to hold a position.

If you’re more of a risk-taker, have the initial capital, and can commit time to trade daily, then day trading can work for you.

If, however, you have a low-risk tolerance and don’t want the hassle of monitoring the market movements, then long-term investing is a better bet.