Reasons I Will Not Day Trade.

As you may have gathered I have a slight interest in investing in shares. I find the area fascinating, the fact I can buy part of a company just by logging into a trading account is a great use of the internet.

Currently I invest approximately 1% of my income (after tax) meaning commission fees eat up a reasonable percentage of any transaction. It is really just play money to see if I enjoy investing, particularly if seeing the changes in price drop depress me and of course doing something for real means it keeps my interest and help me actually learn the subject.

The idea of day trading (buying and selling shares on a daily basis and making money from those fluctuation in price) is a fascinating topic and the mathematics looks like something I would really enjoy. I quickly dropped any idea of attempting to do that and here is why.

1. Day trading means doing it every day, I am way too busy to commit to doing that daily.
2. The people that day trade have similar education to me but the have domain specific knowledge. Big computers to runs simulations and craft algorithms, they have super fast connections to the exchange. That is they have a technology advantage.
3. In the UK it cost about £10 per real time trade. So to buy and sell costs £20, factor in a 0.5% stamp duty (tax on buying shares) it means if I put in £1000 it would cost me 2.5%. The noise on share price is often less than that, particularly after you factor in the buy/sell split value. So I need larger values than that to day trade. To me these numbers are way too high.
4. It just does not suit my character, I am probably a little bit too layed back to excel at it.

Really reasons 1,3,4 could all be overcome if I had the motivation. I could save the money required and dive into it as much as possible. Reason 2 is something everyone should consider, the big boys have the advantage.

Consider a game where we roll a 6 sided dice. If it comes up six I pay you 10 pounds (or whatever currency we decide to play in) any other number you pay me 10 pounds. Want to play?

Thought not as I have the advantage. Day traders at various companies have all the advantages  meaning I will probably loose money and they will probably gain it. I could roll a few 6's along the way but it is not the sort of game I want to play.

So there you have it a better understanding of why I will not be going anywhere near day trading. mmm I guess I should do a follow up post on how a little investor could in theory make money.