This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
Daytrading is risky, huh? Well, today my daytrading capital was safely in cash. The markets went bananas today, and I stayed out to be conservative. Mark-to-Market Net loss: 0%.
My long term investments in my 401k, on the other hand, happily vomited out all the gains I had made so far this year. Yesterday I was up 4%, and today I’m about breakeven. I would have sold on the open today with the futures down so much, but thanks to the stifling of liquidity in 401k plans and mutual funds, I have to take the full loss of today’s close, or hold on hoping for a bounce-back (which is what I’m doing). Mark-to-Market Net loss: 4%.
I would always rather be in a liquid position than an illiquid position. The entire reason that our capitalistic system works is that I can trade work or assets now for work or assets in the future, through money–Liquidity. To me, liquidity (or the lack thereof) is the real source of risk in trading, investing or even business. Timeframe is NOT the source of risk. However, the liquidity of the particular market is not the only thing. People who are highly leveraged in a position so that they can’t unwind it all even in a liquid market are also highly at risk. So before you look down on someone for their trading timeframe, vehicle, or anything else, assess the liquidity first, of their markets and their positions.
I’ll take daytrading any day, and especially today.
[...] comes through your ability (or lack thereof) to liquidate your position in a market. Since I was locked into a position of illiquidity, I was at substantial risk. I never [...]