Over the past week, the popular financial services platform Robinhood gained much traction due to an immediate implementation of restrictions following an unprecedented surge of the stocks GameStop and AMC. Now dubbed, “meme stocks”, internet users created a certain level of market volatility by taking a cheap stock price and shorting it.
Facing Wall Street backlash, Robinhood, a company founded on its commitment to “democratize finance”, froze certain accounts. This move led many users and lawmakers to accuse the site of market manipulation.
However, despite all the negative press, Robinhood experienced record growth during the past week, with over 600,000 downloading the app only last Friday. What does this mean for the future of trading?
During the pandemic, millions of investors have engaged in day trading and clearly, this trend is likely to continue. Day trading is a strategy utilized in the stock market by a person or a company throughout the day to accomplish a goal of profiting from short term market price movements. And although many try to make use of this strategy, day trading is not as easy as it sounds. In fact, most people who attempt day trading end up with a net loss.
To be a day trader is a tedious task and requires a lot of self-discipline to accomplish certain goals. There is even a minimum capital requirement. In the US you must have at least $25000 in your day trading account to trade, if not, you cannot partake in day trading.
With regard to profitability, certain investors have different opinions. Those who participate in day trading often believe there is money to be made; however, most professional moneymakers argue that the risk is often not worth the reward. Additionally, economists note that while many take to day trading as a “get rich quick” scheme, active trading strategies usually underperform a more passive index strategy.
That being said, if you decide day trading is right for you, develop the experience necessary to become a successful day trader by working with simulations and building a significant gameplan. As a novice investor, it is important to be cautious and not to jump in too quickly.
