Introduction to Day Trading for Kids and Teens
This video explains the concept of day trading in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about day trading, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.
Suitable for students from grade levels:
- Elementary School
- Middle School
- High School
The topics covered are:
- What is day trading
- What strategies do day traders use
- Is a day trader guaranteed to make money / profit
- Can a day trader make money even if the stock price goes down
- Should I become a day trader
What is day trading?
Day trading is when people buy and sell the same securities during a single trading day with the intent of making a profit.
This can happen in any type of financial market, but is most common in the stock market.
An example of day trading would be if I bought Amazon stock at 10:00 AM, then sold it at 12:30 PM on the same trading day, because the stock price went up.
Day traders try to time the market and take advantage of price fluctuations through different strategies to make a profit.
What strategies do day traders use?
One of the most popular strategies in day trading is looking at the news.
If a company is scheduled to report its earnings or other important news, and a day trader thinks the news will be good, and the company’s stock price will go up because of it, then they might buy stock in the company before the news is declared, and then sell the stock after the announcement – all on the same day.
If the trader’s prediction is correct, and the stock price goes up, then the day trader could make a lot of money.
There are other strategies like swing trading, scalping, arbitrage etc that day traders use. We’ll cover them separately.
So if I become a day trader, I’m guaranteed to make money / profit, right?
No. There is a common misconception that day trading is a type of “Get Rich Quick” scheme. That could not be further from the truth.
Although there is a possibility of gains, there is also a high possibility of making losses.
Plus, since you trade very frequently, you incur a lot of commissions. This means that even if you make a profit, the commissions eat into your gains!
This makes day trading very risky, and there is no guarantee of making gains.
Is there any way for a day trader to make money even if the stock price goes down?
Yes. There is a strategy called short selling that lets a day trader make money even if the stock price of a company goes down.
But we have talked about short selling in detail separately.
Should I become a day trader?
No. Day trading is usually done by professionals with a lot of knowledge, experience and money. Despite that, they can still lose money!
So individual investors like you and me should avoid day trading.
But there is a much better investment strategy called Dollar Cost Averaging that can be used to make consistent returns in the stock market.