x
Breaking News
More () »

The dangers of day trading: The odds are not in your favor

Day trading has become popular during the pandemic, but an expert says there are tax implications to consider.

TOLEDO, Ohio — "Farmers, engineers, people who just got laid off, people who are bored at home. People who are desperate," says Certified Financial planner Rick Salmeron describing the new generation of day traders who were enticed to pick up a hobby during the pandemic. 

Salmeron says some 8 million brokerage accounts were opened in the first nine months of 2020 tied to platforms like Robinhood, which you may have heard of, offering commission-free trades. 

"'See amazing returns on x, y, z stock' and 'Hmmm, maybe this can be a way to replace what I've lost,'" Salmeron says.

What Salmeron says these folks don't know is day trading has a dark side. If you're making trades in taxable accounts be prepared for a taxing tax season. 

Salmeron says it might not be worth the gains you made on those trades, simply because of short-term taxation rules. 

RELATED: Risk and Reward: Smart ways to invest your money from a financial expert

"If those gains are recognized by that activity in a 12-month period, taxes on that activity are much higher than had they hung on and not realized those gains until beyond a 12-month period of time," he says.

On the flip side, day trading can be like gambling and Salmeron says the odds are not in your favor. 

"I have read that 10 percent of day traders actually make money. That means for every one day trader, there are nine out of ten who are subjecting their life savings at risk," says Salmeron.

Salmeron say if you do successfully trade, make sure to set money aside come tax time next year. For those who don't seem to have the knack, just have patience and think long term for your investments.

RELATED: Experts explain what's happening with GameStop stock and what to expect next

RELATED VIDEO: