Being successful in trading means trying different strategies and mastering new aspects and features all the time. Whenever you decide to become a trader, you’ll need to make some quite difficult decisions straight away.
One of those decisions will be the choice for short-term or long-term trading. While both of them have advantages and disadvantages, as for the trader the most important feature for you should be the profit, you’ll be able to make in any case.
Both trading strategies are capable of delivering a good amount of money, of course in case you understand what you are doing, and are doing it right. While you may want to make a choice between those two, there are some traders who do both simultaneously.
Yet, we would encourage you to choose one of them, at least for the start. Now, what are the main differences between short-term or day trading and long-term trading?
Short-Term VS Long-Term
Short-term trading is the type of trade that is completed within seconds or several weeks, yet no longer than 60 day period. The position might be opened in the morning and even left overnight and closed or can be left for some more time.
Traders that choose this way of trading, take the most advantage of the short-term fluctuation in the prices. Usually, this kind of trade lasts for a few minutes or several days.
On the other hand, there is long-term trading, which may last several days, but might take several years as well. Though this was the longest example, while generally regular long-term trades can last for several days or maybe a week, yet some investments can last for months.
Short-term trades have the buy and sell approach, which is very logical, as it is time-limited, while the long-term trade is the buy and hold and hold even more approach. If you think that both of them should be very simple at this point, don’t rush to conclusions, as there is a whole difference in the decision-making process.
Some main differences between day trading and long-term trading involve time commitment, potential returns, and capital investment.
Also Read: How to Become Your Own Stock Analyst?
As you may know, there are different trading assets. The investment capital varies depending on the assets. For things like futures, the best option is to start with the capital of $5,000 to $7,000.
Though in some cases, there might be minimum balance requirements, similar to “pattern day trader”, when there is minimum equity of $25,000 on any day that the customer day trades.
The required minimum equity must be in the account prior to any day-trading activities, yet it only concerns short-term stock trading.
While you have to invest financial capital in order to start trading, FX has the lowest relative capital. With a global FX broker like Axiory, the minimum deposit can be as little as $50.
If you turn towards long-term trading, you should consider the limited options. In terms of long-term trading investors usually choose stocks, which is for a reason. Futures have a very quick expiration date, which does not work for long-term trading.
The currencies, which are on one hand the most popular trading assets, are hardly ever stable and investible from a long-term perspective. Thus, stocks tend to be the best option.
In the case of short term trading, the first choice is currency pair, yet ECN is the primary destination for traders, because of the swift processing speed. So, if you are into short-term trading then take the advantages of trading with an ECN broker into consideration too.
This is a type of broker that provides its traders with direct access to other participants via interbank trading prices.
Another very important aspect worth noting while comparing short-term and long-term trading strategies is the time and the commitment you’ll most probably require.
While short-term trading takes from several seconds to several days to open and close the position, it also means that you have to be careful and attentive to the market and the movements which may bring changes to the prices of assets you are trading with.
This is the price you have to pay if you want to trade daily. In total, throughout the week your hourly commitment may be as much as 40 hours.
In the case of long-term trading, all it takes is several hours per month. Due to the better flexibility and relatively smaller movements of the market, you have time to make research on the asset and only occasionally monitor the market. In both cases, you need to be patient and be in charge of your actions.
Never lose control over the movement, but also never rush into the conclusion. As some of the biggest profits have been made after the drastic plot twists of the markets.
You can earn thousands with short-term trading, and millions in long-term investment. Deploying large amounts of money on several minute-long trades is none of the easy things to do. Which is what makes the two strategies different from each other.
Shall we talk about the percentages and returns, it should be mentioned that the profit per capital during the day trade is from 0.5 to 3% maximum, which is in extremely rare cases when the trade is extremely profitable.
On the other hand, the return on the monthly basis can be from 10 to 60% of your capital in the case of long-term trading. Returns can be bigger or smaller, depending on the period of trading.
To be short, short-term trading brings smaller profits, significantly sooner, requiring your full attention and dedication, while long-term trading brings more passive income and is capable of generating wealth with less effort and time commitment.