What is day-trading?
Day trading is a practice that involves purchasing and selling of a security in the market in the course of one trading day. Most commonly, day trading is used in foreign exchange markets and stock markets. Day trading is accompanied by inherent and high risks, but as with any high-risk endeavor, it could also yield very high returns. For many people who deeply and extensively understand markets, it can make for a lucrative career. These people employ complex short-term trading strategies and high amounts of advantage to make money on highly liquid stocks and currencies.
What is leveraging?
Leveraging is an investment strategy in which individuals or companies use debt (borrowed capital) to make investments in typically risky assets. By using leverage to invest in an asset, there is a possibility of amplifying the potential returns on investment. The process of leveraging works differently for various investments, and can be tangible or intangible borrowing from brokers, lenders or other sources.
Should you take out a personal loan for day-trading in equities?
Like all high-risk investments, this one also has its pros and cons. Keep in mind that before taking out a personal loan to day-trade in equities, you should be extremely confident about your knowledge and experience with markets. In general, only seasoned investors with well-planned strategies would be able to reap the full benefits of taking out a loan for equity day-trading. Here’s a quick round up of the potential benefits as well as risks involved in financing equity day-trading through personal loans.
If you’re someone who has a trained eye for short-term price movements in equities, and knows how to take advantage of them, then this could be a great investment strategy for you.
Equities and mutual funds give you higher returns on investment than almost any other asset class, so if you know what you are doing, have a good risk appetite, and have the ability to absorb some losses, and then it could help you build your wealth.
Taking out a personal loan can help you invest more in equities, because you have greater amount at your disposal over and above existing assets. This can help you amplify your profits from the investment substantially.
If you think that your investments are strategically sound and your return on investment will be greater than your debt, or if you have the ability to pay off the loan in case your returns are lower than expected, then you can use this strategy to accumulate wealth.
It is estimated that there is more than a 50% chance that you will end up with losses on day-trading equity. Needless to say, it is a very high-risk investment, made even more so if you take out a personal loan to finance something that may very well fetch you no returns.
Leveraging may be the fastest way to accumulate wealth, but it can also prove to be the most dangerous. Just as taking out a personal loan to day-trade in equities can majorly amplify your returns; it can also quickly and substantially increase the losses you incur if markets do not perform that way you anticipated.
Keep in mind that personal loans come with their own, often very high costs. Because these are usually unsecured loans, they have higher rates of interest along with other charges such as the processing fee. If markets under perform, you may not even be able to cover your interest payments.
Ultimately, your financial health and situation, your risk appetite, your age, and your financial goals are key determinants for whether or not you should finance day trading in equities through a personal loan. What is also indispensable is expansive knowledge and intuitive understanding of the markets to navigate the complexities of day trading.
Once you understand the benefits and risks, you can make an informed decision. If you do think this is the way to go, you can avail the Bajaj Finserv Personal Loan offered on Finserv MARKETS. Bajaj Finserv Personal Loans are hassle-free, collateral-free, and comes with attractive rates on personal loan interest. You can also use the Personal Loan EMI Calculator, available free on the Finserv MARKETS, website to check exactly how much interest you have to pay based on your loan amount and tenor. Avail a personal loan of up to Rs 25 lakhs with instant approval and disbursal and flexible tenors, so you can easily meet your day-trading requirements!
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