Year 2022 so far has been a hell of a ride for the US stock market. Due to high inflation, rising interest rate and the fear of a recession. The tech heavy Nasdaq dropped 25% and is in a bear market, where S&P 500 index is in correction with 14% year to date decline, and the down trend set to continue with no one knows where the bottom really is.
It’s quite a challenging market condition for the stock investors. Essentially if you started investing in stocks in the past year or so, your portfolio is most likely down. Having said that, there are people who are taking advantage of this market volatility and continue making money, even when the overall market is down. We are talking about stock traders.
In this article, we cover the pros and cons of trading stocks, and discuss whether stock trading is a viable way to make money in 2022.
KEY TAKEAWAYS
- Basic concept of stock trading
- Profitable stock traders can generate consistent income through trading
- Stock trading is less capital intensive than most investments
- Enjoy making money trading stocks anywhere, anytime
- Making money trading stocks requires training and skills
What is stock trading?
When we are talking about stock trading, we are referring to the activity of buying and selling stocks to profit from the short-term volatility of the stock market. Unlike stock investing where an investor would usually hold on to a stock for years, stock traders would hold on to a stock for a much shorter period of time, maybe a couple of months, weeks, days, or even just a few seconds. There’s no long term commitment in stock trading, only short-term profits.
With the common understanding established, let’s have a look at the pros and cons of stock trading. First start with the 3 main advantages of stock trading.
Income Generation
Stock trading is risky, and most traders lose money. But, for traders who manage to become consistently profitable, stock trading can be one of the quickest ways to generate income. There are plenty of traders who make a living trading stocks full time. Below is a quick demonstration of intraday stock trading, where I earn a quick $80 dollars in just 80 seconds day trading Tesla stock.
Low Capital Requirement
Most investments, be it stock investing, property investing or business investing, would need a larger amount of capital commitment in order to generate meaningful returns. Stock trading on the other hand is much less capital intensive. A consistently profitable trader can generate decent return with a relatively small amount of trading capital. One such trader is Ross Cameron, who famously turned $500 into $1M in just 2.5 years. It’s almost like having the license to print money!
Freedom and Empowerment
The 3rd benefit of stock trading is probably the most attractive for most people. The sense of freedom and empowerment. Most income generating endeavors out there would require a certain level of time and service commitment, and the success would be dependent on others’ feedback, either from the bosses or customers. Stock trading on the other hand is pretty much insulated to all that. All you need is a computer, internet and an initial fund to start trading.
Once you master the art of trading and become consistently profitable, you can literally make money almost any time, anywhere. There are no bosses to please, no customers to satisfy, and the hours can be completely flexible. It’s one of the most freeing and empowering ways to make money.
But before you get all excited and want to quit your job becoming a stock trader, there are some potential downsides of trading to be taken into consideration.
High Barriers to Entry
Practically anyone can trade stocks, but making money from stock trading can be difficult, because no one can predict where the stock price will go in the short term. Profitable traders typically rely on trading plans based on technical and fundamental analysis, timely execution, rigorous risk management and a strong trading psychology to survive the volatile stock market and make money. This requires years of learning and skill development.
No Guarantee to Success
Trading is risky. Around 90% of high frequency traders lose money. Failing to manage risk is one of the biggest reasons why most beginner traders lose money. Without proper risk management, it’s not uncommon for beginners to blow up their accounts and quit trading early in their trading career, without allowing enough time to develop their skills and unleash their full potential.
Is Stock Trading Right For You?
There are 5 questions that can help you assess if you should give stock trading a try:
- Are you looking for another way to generate additional income?
- Are you looking for less capital intensive way to generate the additional income?
- Are you looking for freedom and flexibility while generating the additional income?
- Are you comfortable taking financial risks for the potential upside?
- Are you willing to put in extra work in order to gain new skills and knowledge that may become new income stream?