[ELI5]How do day traders lose money, why would they sell their stock for a loss in a day insyead of waiting for the cost to increase?
In: Economics
I’ll just say this, because I have found it useful. Bernard Baruch was asked how he made millions in the stock market. He said, “I always sold too soon.”
I’m assuming options trading. You can buy / sell a contract that expires at the end of the day. The market can work against your “bet” in a way and when the contract expires.
Say you buy a contact for $100 that states , if the stock moves up by $5 I will buy it from you. Someone can buy that contact from you, and if the market actually goes up 5$ you can sell it and make a profit. If it does not , basically you will own a worthless contact but will have lost the $100 you used to buy it.
There are only 2 reasons to trade a stock, no matter if its a day trader or not:
If you think it will rise, buy it (or hold it if you own it)
If you think it will lower, sell it (or don’t buy it if you don’t own it).
So if you think the price will decrease, you should not continue to hold the stock. If you think the price will increase, you should keep the stock.
Might not go up again in the near term. There’s risk holding stock overnight, if something affects overall market or stock in particular. Opportunity cost of not having capital to make other trade.
Fear that a stock price may never increase again in the near future and/or that the principal could be used elsewhere for greater returns.
Or trading options, but that’s another story.
If there’s a chance the stock doesn’t rebound, they’ll sell at a loss to prevent a larger loss. For example, take a look at Plug Power. Lost over half it’s value in a month. That company was overvalue and will almost certainly not return to that level.
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