One of the most important decisions investors make when they develop an investing strategy is how long they want to invest their money.
Some people have time horizons of many years, such as people building a portfolio for retirement. So, they focus on assets that might best earn returns over that period. Other investors, like active day traders, have much shorter time horizons as they trade for more immediate gains.
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What is Day Trading?
Day traders focus on narrow windows of profitability during the trading day to make money within hours. They develop specific methods for buying and selling securities, and then they work to improve those methods to maximize their profits. This type of trading can be risky, but it can also be rewarding.
Day trading does require a little more market savvy than long-term investing. So, if you want to delve into this potentially lucrative field, it’s important to have a solid understanding of what day trading is and how it works. Then, you can shape your own investing strategy as you try your hand at finding profits in daily market movements.
What Can be Traded?
You can trade several different types of assets during a trading day to make a profit. It is important that the assets you buy and sell have some volatility withing the trading session so you can take advantage of the highs and lows.
However, keep in mind that assets more volatility and a higher potential for gains, also have a higher risk of loss.
Here are some common assets that day traders in Canada may focus on:
The foreign exchange market, or forex, is a market that is considered more accessible than others. Currencies can have significant volatility, which can provide ample opportunities to make a profit. You can also start trading in forex for relatively little money, with some forex brokers having no minimum requirements to open an account.
Stocks, or shares in a company, are a popular asset focus for day traders. You can buy and sell shares of an individual company or invest in Exchange-Traded Funds (ETFs) that follow a particular index. In Canada, traders can, for example, trade stocks of companies in the S&P/TSX, the benchmark Canadian index that tracks about 250 of the largest publicly traded Canadian companies. This index, which is calculated by Standard & Poor’s, is similar to the S&P 500 in the U.S.
The S&P/TSX Composite Index is listed on Canada’s primary Toronto Stock Exchange (TSX). It is a capitalisation-weighted Index tracking performance of the Canadian Exchange.
Day traders are increasingly seeing opportunities to earn money in digital currencies like bitcoin or dogecoin because their values can change significantly in one day. Remember, with more volatility comes more risk.
Binary options give investors only one of two outcomes: a fixed return or no return at all. Because of this straightforward result, binary options are a fairly simple asset to trade, so it attracts many new traders. Still, it’s important to fully understand how binary options work before you begin day trading them because they have some unique features.
Trading in futures is basically trading in contracts to buy and sell at a later time. Futures often allows investors to begin trading with a smaller amount of money.
Commodities are basic goods that are purchased by consumers, like precious metals, coffee, wheat, cotton, or sugar. They change in price based on basic supply and demand principals.
Getting started with day trading in Canada is straightforward. You will need to open an account with a broker and then fund the account with your money so you will be able to buy securities.
You can open a day trading account and start trading quickly, but you may not want to put your money at risk without practice. To get a sense of a day trading platform without using your money, you can open a demo account, which uses simulated money. This way, you can get hands-on experience and before you decide if a platform like Tradenet is right for you. Tradenet also offers funded accounts for traders to practice with real money.
Some demo accounts, or practice stimulators, require a quick sign-up process. Others offer trading demos with no registration.
The advantage to using a demo account is that you can learn how a particular platform works without losing money. However, one downside is that your trades won’t earn money for you, either.
Other potential downsides include the fact that simulated trading may work more smoothly than real-life trading, which may encounter glitches as prices change. Also, some traders find that they can easily recoup losses with a large amount of simulated money, whereas in real life those losses may be harder to recoup with smaller deposit amounts.
Finally, many traders find that trading with a demo account does not involve the intense emotions that can come with trading live. However, the more you practice with demo accounts, the less emotions like fear and greed will play a role in your decision making, which can save you costly mistakes.
How much money do you need to start day trading?
In the U.S., day traders need to have an account funded with a minimum of $25,000 to make more than a few trades per week. In Canada, there is no minimum account requirement. However, some brokers will set their own minimum, often near $25,000. (See below for details on how much specific brokers require for day trading.)
It is important to only risk what you are willing to lose. You can use a strategy that involves stop loss orders to help you protect your money
On the other hand, the more money you use for day trading, the higher your potential profits. For example, if you earn a 1% on return on $2,000, your return is only $20 – but on $200,000, it is a much more impressive $2,000.
Opportunities to Improve
Learning how to read charts or look for indicators is an ongoing process.
New traders have a wealth of educational resources to help them get started and then improve their techniques. Traders who continue to focus on learning can improve their techniques and develop more reliable ways of managing risks, and, in turn, potentially make more money.
Many online educational hubs, like Tradenet, offer an array of learning tools, from an extensive day trading chatrooms to free basic financial education courses.
Among its more unique learning resources, Tradenet gives investors the opportunity to take the Tradenet Simulated Trading Challenge, in which you can try your hand at trading with a $10,000 simulated account for five days. If you can earn $500 profit by day five, you can win access to Tradenet’s Intro educational package.
In another competition designed to put your day trading skills to the test, Tradenet hosts the World Series of Day Trading. This six-day competition gives you a chance to win access to a funded account valued at $240,000.
Other ways you can improve your day trading skills in Canada may include:
- Enrolling in day trading courses
- Connecting with a day trading mentor
- Participating in day trading webinars
- Reading books about day trading strategies
- Watching YouTube videos on day trading
Day Trading Strategies
Day traders have seemingly infinite strategies for maximizing returns and lowering their risk. The key to finding the best strategy for you is identifying a strategy for deciding when to buy and sell, and then trying it out, perhaps through a demo account.
A few general day trading strategies include:
- Momentum: Buying stocks that are trending, for example, on news or announcements.
- Scalping: Selling as soon as you make a profit.
- Fading: Shorting stocks after sharp increases, anticipating the stock will ease down.
- Daily Pivots: Using volatility trends to establish a price target at a high point to sell.
Investors can learn more about how to develop their own strategies with Tradenet’s educational programs designed for various skill levels – from beginner to professional.
Top 5 Most Shorted Stocks in Canada in 2021
- First Majestic Silver Corp. (FR-T)
- Aurora Cannabis Inc. (ACB-T)
- Great-West Lifeco (GWO)
- Tanger Factory Outlet Centers (SKT)
- Westshore Terminals (WTE.TO)
Top 5 Brokers in Canada
Before you start day trading, you’ll need to find a broker that is a good fit for your trading goals and financial situation.
Here are five brokers that offer day trading services in Canada. Each of these brokers offer a mobile app so that you can conduct your day trading on-the-go from your mobile device.
- Questrade. With Questtrade, you need a minimum of $1,000 across all your accounts. Commission ranges from $4.95 to $9.95 per trade (1 cent per share).
- Qtrade Investor. Accountholders must have a minimum of $25,000 across all accounts. Commission is $8.75 per trade.
- TD Direct Investing. The minimum amount to begin day trading is $15,000 across all accounts. Commission is $9.99 per trade.
- Scotia Bank iTrade. The minimum deposit amount is $25,000 and commission is $9.95.
- National Bank Direct Brokerage. You must have a minimum of $20,000 across all accounts. Basic stock-trading commission is $9.95.
Day traders in Cananda who want access to the U.S. markets can leverage online platforms like Colmex Pro. This online trading platform has powerful analytical tools and unique stock screeners. The minimum deposit is $500. Fees start at $0.01 per share and decrease in a tiered system according to the size of your deposit.
How Much Money Will You Make?
The amount of money you will make day trading can vary widely and depends on a number of factors. Beginners should set their expectations very low and anticipate losses.
Some day traders do not make any money, and many lose money. Others may find a strategy that works well and delivers reliable gains that can provide a healthy income.
The Bottom Line
Being a successful day trader starts with having realistic expectations, including anticipating some losses. Creating a plan for day trading in advance can help you avoid making emotional decisions based on, for example, fear or panic. Determine what type of asset you will trade and how much money you will invest in day trading, among other details.
Continue to fine-tune your day trading skills to improve your techniques with a wealth of educational resources named above.