Conservative investors usually buy shares and hold them for several years or longer to take advantage of the overall upward trend that the stock market usually follows for a long time. However, the stock market is liquid, which allows investors to buy and sell shares on the same day or even at the same hour or minute. Buying and selling shares on the same day is called day trading. Can you buy and sell stock in the same day?
Wondering why your broker does not allow you to buy shares and then sell the same shares on the same trading day? No wonder it’s not anymore. There are good reasons for this.
The action quoted above is called day trading. It can happen on any financial market, but day trading is most common on the stock market and currency markets (forex). Day trading is not necessarily a bad thing; it is also not illegal or unethical. However, it is very risky and complicated, and the technique is best used by a professional trader. Usually, daily investors are experienced, well educated and well financed by large financial services institutions. One-day investors are also bound by the regulations established by the Financial Industry Regulatory Office (FINRA).
Lifting trade restrictions
However, if you are an experienced investor, you can ask the broker to remove all restrictions from your account. Depending on the particular company and your financial situation, your broker may immediately remove or loosen restrictions or may lift them after a certain number of transactions have been completed. If you still think your brokerage account is too restrictive, you may want to shop around because you can find a more compatible broker with less trading restrictions.
Basics of trading for the day
One day traders buy and sell shares on the same day in an attempt to profit from daily fluctuations in share prices. For example, a daily trader may buy shares for $ 35.50 per share and sell them a few minutes later for $ 35.60 per share, with a profit of 10 cents per share. If later the share price drops to USD 35.50, the trader may buy more shares in the hope of another price increase. Day traders can buy and sell the same shares several times on the same day.
Transaction risk of the day
Day trading is extremely risky because daily stock price fluctuations are unpredictable. One-day investors generally focus on short-term stock prices. Once their gambling pays off, but they can lose money very quickly. According to the US Securities and Exchange Commission, most new day traders suffer severe financial losses, and many traders never make money.
Even if investors manage to earn money during the day, they usually have higher tax rates than long-term investors. Profits from the sale of shares are subject to capital gains tax. If the investor has shares longer than one year, the maximum capital gains tax rate is 15 percent. If the investor holds shares for a year or less, the capital gains tax rate is equal to the normal tax rate of the taxpayer. This means that trading day profits can be subject to tax rates of up to 35 percent.