Teenagers love the thrill of being daredevils and taking high risks, but it might be damaging to their future financial status.
The 70-20-10 rule for budgeting has become one of the most followed tactics to staying financially stable. The “20” applies to investing and saving 20% of one’s income. Although this has become a very effective method, the way one invests will determine their outcome.
Day trading is a type of investment that has become increasingly popular among individuals in the past fews years despite the low success rate. This type of investment has a 10% success rate and is extremely risky. Day trading consists of a trader purchasing shares of a company called contracts and then selling them by the end of the week. As a result of the quick trades, the contracts have high volatility and make the stock price change rapidly.
Junior Zac Mathews is involved in day trading and has experienced both sides of the story when it comes to the short term holds. “Day trading is pretty risky because the price is never at a stand still, it is always moving,” he said. “I have made a ton of money in just minutes of trading but also lost it all on a different day.” With the threat of losing huge amounts of money, day trading has been considered another form of gambling.
Rita Brown teaches the personal finance class at PV and has great concern for those that partake in stock gambling. “[Day trading] is very risky because it’s hard to predict how the stock will do within a day or two,” she said. “It’s very similar to gambling and it’s not a good habit to get into when trying to be financially successful.” When trying to financially set oneself up for the future, getting involved in risky activities is not the best option. Holding stocks for the long term provides more stability and can limit financial losses in large amounts.
Although day traders have seen profit over some period of time, that is not the case for the majority of traders as most do not see success when they first get involved. The SEC is a federal agency that watches over a majority of the activity involving stocks and the market. Many reports have shown that traders are not successful at the start as the U.S. Securities and Exchange Commission (SEC) has released statements to back up the success day traders see at the start. “Day traders typically suffer severe financial losses in their first few months of trading.”
With a top agency looking down upon the gambling acts inside stocks, it should be a wake up call to those that have engaged in day trading. Teenagers may not feel that they have to worry about financial losses at the moment, but if they add up, they will become detrimental to their financial stability in the future.