While many investors like to buy stocks and hold onto them for years, it’s also possible to make money by buying and selling stocks on the same day. This is known as intraday trading or day trading, and it’s an excellent option if you have the funds available to set aside time each day to monitor market activity and react quickly to opportunities that come up. In this guide on how to buy stocks, we’ll go over the basics of intraday trading, so you can decide whether it’s right for you!
We get this question all the time, I want to buy stock in XYZ company and then sell it the next day, what do I need to do? First off you need to know that the SEC does not regulate day trading at all, so you do not need any special permissions from them. All you have to do is open an account with an online brokerage (we recommend Scottrade) and download your free trade software (we recommend eSignal). Once you do that, let’s see how you can buy and sell a stock in one day… if you want to!
The Pros
If you really want to own a share of Apple or Bank of America, your best option is to just purchase the shares outright. While there are several caveats, generally speaking, short-term trading has low barriers to entry: You can open an account online within minutes and start trading immediately. In most cases, all you need is enough money for a commission and some margin if you’re buying on margin. There’s no approval process like with a traditional broker, so if you have sufficient funds, you’re good to go. Plus, unlike mutual funds or ETFs, stocks offer instant gratification: you don’t have to wait until the end of the day when prices may be different (or even close) from what they were when you bought them. You can also see how much profit or loss you’ve made by looking at the price of your shares in real time.
The Cons
There are some drawbacks to trading quickly. Selling a security before you’ve owned it for one year typically incurs an IRS short-term capital gains tax—if your security is held in a non-retirement account, that is. Typically, short-term capital gains taxes top out at 15%, which isn’t too bad—but if you trade frequently, and you hold positions for less than a year, those taxes can really add up. For example, if you make $10,000 in profit on trades but pay $2,500 in taxes because they’re short-term gains, then your net profit is only $7,500. You could still come out ahead with this scenario, but it would depend on how much each trade costs you.
And Finally…
While there is nothing inherently wrong with short-term trading, you should understand that stocks are not like baseball cards. Stocks are part of an ownership stake in a company, which means they should be considered long-term investments. While it’s possible to make money from stocks in a single day or week—it’s extremely risky, and ultimately unsustainable. The goal should always be building wealth over time by investing in the market for years and decades.
