What are the non-obvious risks to daytrading?

Other than the risk of losing money, higher capital gains, and more complicated taxes, are there any regulatory reasons not to play the market? I can’t recall if anything was put into place after the .com bubble burst, but my fuzzy memory is telling me so.


There are equity requirements if you meet certain classifications:


edit: not really applicable if you aren’t doing margin trading.

but my fuzzy memory is telling me so.

Don’t trust that fuzzy memory, it’s no good.

I think the obvious risks are quite enough to make the case against it, no? Nobody but insiders can consistently outsmart the market, and I say this as someone who likes to dabble in daytrading.

The obvious risks are so bad that it wouldn’t seem necessary for it to have any non-obvious risks to decide to avoid it.

This probably isn’t what you are asking about, but I have a good friend who introduced me to day-trading (as in, he let me watch while he did it, showed me all the technical analysis programs he had bought and was using, his multi-screen set-up, etc.) Looked cool. He was excited about it (fwiw, he was an accountant) and described some recent “wins.”

A year later, his marriage was falling apart, and he was close to bankruptcy. He had been sneaking money from their savings because he was convinced he could get it back if not for some unlucky streaks. He’d obtained and maxxed out the cash advances from several credit cards for the same reason, and was trying to convince him to be his financial backer. He was as hooked as any stereotypical gambler you’ve ever seen.

Let me put it this way: unless you have $10K available to play with, day trading isn’t worth the effort. You’ll never make enough profit to warrant the extra effort and stress. And if you DO have that much, consider that you’re liable for capital gains on every dollar of profit you make but can only declare a maximum of $3,000 in losses per year.

There’s a reason only the richest of the rich get richer doing day trading.

It’s the lure of easy money - it has a very strong appeal

Day trading is gambling, plain and simple. And the broker fees are the vig. Of the people I know who day traded, the lucky ones are the ones who lost money early and quit. The guys who made a lot of money when they first started ended up going further in the hole because they believed they could replicate their early success.

Just like gamblers.

Wait… he was an accountant, but he didn’t understand probabilities? I don’t understand… I thought accountancy involves quite a lot of math.

BTW… I’m not trying to be snarky. I’m honestly confused.

If you think mastering math and understanding probablity theory guarantees success in day trading you might as well hand whatever money you’d planned to invest to charity right now so it doesn’t go completely down the toilet.

You’re actually confused by that?

I know lots of people who are fantastic at math and still gamble with poor odds, play the lottery, etc. I also know people who smoke and/or overeat to obesity despite knowing the health risks involved.

Knowing something is stupid to do and consistently stopping yourself from doing it are two extremely different things.

I don’t think that was quite his point, though obviously I don’t speak for him. I don’t think he was suggesting that if the guy was great with probabilities that he’d have done better, but rather that he’d have quit before throwing good money after bad.

Do accountants really deal with probability a lot? I thought accounting was mostly about “what happened” and not “what might happen”.

I understand gambling as a form of recreation. But Jeff’s friend seems to honestly think he’ll make money… or something to that effect. It’s not recreation at that point. I honestly (and incorrectly, apparently) assumed that gambling addicts had a poor grasp of probability, since it’s guaranteed that you’ll lose in the long run.

I don’t hang out with any heavy gamblers, as you might be able to tell.

I also know people who smoke and/or overeat to obesity despite knowing the health risks involved.

Well sure, but drugs induce certain feelings & create cravings. I get that kind of addiction. I assumed that the best way to break people of purely psychological addictions is to deal with the root causes and/or educate them. Overeating? Figure out if the person is bored/has low self esteem/whatever. Playing too much Wow? Figure out if the person is escaping from life/bored, etc.

I don’t have a psychology degree, as you might be able to tell.

Edit - Nevermind. Wikipedia to the rescue. I’ll be damned. Our minds work in weird ways.

I think anax confused accountants and actuaries. Accountants do huge huge loads of simple math. Add the sums up, subtract the payment, multiple by interest. I can’t remember a single complex calculation above a high school math level in my accounting courses, Some annual percentage rate stuff was about the worst and again computer/calculators really handled all that.

Yeah, that’s a bad assumption. As one example group, there are a lot of people who are pro poker players (who do really well at poker in part because of having a very solid grasp on probability), who turn around and throw away much of the money they win at poker by gambling it away on bad odds bets (sports book, gambling casino games, etc). Knowledge and discipline are very separate things.

Nah. I assumed that accountants had to take more math than they directly need. From my own experiences, I know I had to take advanced differential equations to be a chemical engineer, even though I never needed anything more advanced that algebra for my ChemE classes.

This is a very accurate portrayal of my recent accounting classes. The theory of accounting is very interesting (well, to an econ major anyway), but the practice is downright drudgery.

I suspect it gets rather more interesting when you’re arguing over how minimize tax payments while maximizing future share prices for a large conglomerate.

The friend was day trading, not doing some kind of traditional gambling activity like blackjack. I’m not sure how understanding probability will let you understand day trading.