What Is Day Trading? Why It’s Risky—and Not a Smart Way to Build Wealth

Maybe you’ve been talking to a buddy at the gym who’s gotten into a type of investing called day trading. Maybe you’ve got some extra cash and you’re thinking about testing the waters yourself—what’s the worst that could happen?

Well, almost every person we’ve talked to who has tried day trading has the same story—and the same tragic ending.

 

At first, they’re excited. They’re convinced they can quit their day job and make a fortune buying and selling stocks every day—it seems so easy! But a few months later, they’re stunned when the losses start piling up and they realize they’ve lost all the money they put into it.  

Let’s take a closer look at what day trading is, how it works and why you need to stay far, far away from getting caught in that trap! 

What Is Day Trading?

Day trading is buying and selling stocks within the same day with the goal of turning a profit from short-term price changes. A day trader might buy a stock at 9:15 a.m., turn around and sell it at 2:37 p.m. that same day, and repeat that process multiple times before the day is done. The idea is to make a bunch of very small profits that will (hopefully) add up to big gains over time.

“Day traders are a lot like fishermen. They remember the days they caught stuff, and they have a mental block on the days they didn’t.” — Dave Ramsey

How Does Day Trading Work?

Day traders aren’t really what you’d call long-term thinkers. Every day, they’re glued to their computer screens and televisions so they can stay up to date on the news and any trends that might give them hints about which direction a company’s stock will move that day.

Many day traders will buy and sell stocks based on current events—anything from quarterly profit statements to product launches or major announcements. They’re focused on what’s happening right now. Other traders might use sophisticated algorithms or analyze charts to try to figure out the best time to buy or sell.

A day trader tries to make money in one of two ways:

• If a day trader sees a stock price moving higher or thinks it might go higher that day, they’ll buy the stock and then sell it once it goes up. But if the price drops, they’ll lose money when they sell it. Pretty straightforward!
• On the other hand, if a day trader thinks a stock might take a nose dive that day, they might try to “short sell” it. That’s just a fancy term for betting against a stock. When someone short sells a stock, they profit if the price of a stock goes down.

With either strategy, day traders are hoping those stocks will move in the direction they expect them to. They’re not afraid of the stock market’s volatility in the short term. Instead, they embrace it and want to take advantage of it.

Why Is Day Trading a Bad Idea?

The steady rise of online stockbrokers and do-it-yourself investing apps makes it easy for anyone with a smartphone or an internet connection to dabble in day trading. But just because it’s easy doesn’t mean it’s smart.

We’ve heard lots of stories about day traders who thought they could get rich quick—only to lose thousands of dollars and end up in a world of financial trouble. Whenever we hear stories like that, Proverbs 28:20 (NKJV) comes to mind. That passage says, “He who hastens to be rich will not go unpunished.” Let us be the first to tell you, day trading will leave you feeling punished.

Here are a few reasons why day trading is always a terrible idea:

1. Day trading is not investing. It’s gambling.

While most investors might shy away from relying solely on stocks that bounce up and down like a ball in a pinball machine, day traders love these types of stocks because they might be able to make a quick buck off them.

The problem is, it’s almost impossible to predict which direction these stocks will move throughout the day. And one wrong guess could lead to hundreds or even thousands of dollars lost on a single bad trade.

Don’t believe us? Studies have shown that the vast majority of day traders lose money over time, and less than 1% of day traders are actually profitable.^1,2 One percent! But of course, nobody thinks they will be the one losing out. It’s like playing a high-stakes poker game: You might win a hand or two here and there—but chances are, you’ll leave the table broke and disappointed by the end of the night.

More often than not, day traders end up on the wrong side of a trade. In fact, a study found that about 3 out of every 4 trades (72–80%) were made by day traders who weren’t making any money.³ It’s just not worth the risk!

“I’ve seen ‘experts’ lose money in it [day trading] and I’m nowhere near an expert. Of course, I do see it as gambling. . . . After living in Las Vegas for a few years, I see how the people gambling think they are winning when it’s obvious they aren’t. I’ve decided it’s not worth it.” — Mark M., member of THE Ramsey Baby Steps Community on Facebook

2. Taxes and fees eat into any day trading earnings.

Day trading typically comes with costly commissions and transaction fees that cut into any earnings you might wind up getting, so your profits need to be high enough to cover those costs. Oh, and your earnings from day trading will also be taxed as short-term capital gains at your regular income tax rate.⁴

3. Day trading comes with a high level of pressure and stress. 

There’s a reason why more than 75% of day traders quit within the first two years of trading.⁵ Investing in the stock market already feels like a roller coaster with all the ups and downs. Day trading takes that feeling to an extreme level. It’s more like being on one of those drop tower rides at an amusement park that jerks you up and down over and over again—and you can’t get off.

The emotional and psychological toll of day trading has left behind a trail of broken marriages and long-lasting health issues (both mental and physical).⁶ Day trading isn’t just dumb—it’s also dangerous.

What Does It Mean to Day Trade With Margin?

Many day traders will actually borrow money and go into debt to make their trades—they call this “buying on margin” or using “leverage” to buy more stock than they can really afford.

They’ll use a margin account to make their trades. A margin account is a type of brokerage account where a lender (in this case, the broker issuing the account) lends investors cash to buy investments.

But here’s the thing about margin: Yes, it increases an investor’s access to money to make more trades and potentially make more money. At the same time, though, it exposes them to more risk and potentially larger losses if things turn sideways.

To protect their own interests, the lender uses the account itself as collateral. That means they can take money or investments directly from your account to recover their losses—or freeze those assets until they get their money back.

When you start making trades with margin, you’re playing with fire. And it’s a really good way to get burned. Not only could you lose all the money you’ve invested—you could end up buried under a pile of debt too. Never, under any circumstances, borrow money to invest. 

What Is the Pattern Day Trader Rule? And When Is It Ending?

Anyone who makes four or more day trades (that’s when you buy and sell a stock on the same day) within five business days is classified as a pattern day trader. This is important because if you’re a pattern day trader, you have to follow certain rules set by the Financial Industry Regulatory Authority (FINRA).

One of those rules is known as the pattern day trader (PDT) rule, which states that you must have at least $25,000 in the brokerage or margin account you trade with.⁷ That’s not exactly chump change! If your balance falls below that amount, you’ll need to deposit more cash into the account before you can continue trading.

The rule was put in place in 2001 shortly after the dot-com bubble burst, to keep small investors from taking reckless risks with their money. But that’s all changing. In April 2026, the U.S. Securities and Exchange Commission (SEC) approved FINRA’s proposal to ditch the $25,000 requirement.⁸

Instead, a more relaxed requirement will take its place. Investors with eligible margin accounts of $2,000 or more will be able to trade up to the maximum amount allowed by the individual brokerages they trade with.⁹ These changes go into effect on June 4, 2026, but brokerages have up to 18 months (until late October 2027) to implement them for their investors.

 

So, what does this mean for the future of day trading? For starters, this move makes it easier for people with small accounts to get into day trading. It opens the door for a horde of high-risk “YOLO” investors who think they can make a quick fortune picking winners and losers in the stock market—probably with “help” from their buddies on Reddit.

But while it’s now easier than ever to get into day trading, the dangers and risks remain the same. Many of these new day traders are in for a rude awakening when they find out for themselves why most day traders lose money and quit after a few short years (if they last that long).

As tempting as it might be to dabble in day trading, you’re better off staying far away from the ruckus and sticking with investment strategies that actually work over the long haul (more on that below).  

Day Trading vs. Long-Term Investing: A Better Way to Invest

Listen, when you’re day trading, you’re not investing—you’re gambling with your money. It’s reckless, risky and extremely unpredictable. And it’s simply not worth your time. 

Day trading is basically a get-rich-quick scheme—plain and simple. Some seminar speaker or TikToker living in his mother’s basement will try to convince you that day trading is a shortcut to making a fortune. But what they won’t tell you is that there’s a difference between getting rich and building wealth.

Investment Strategy Comparison: Day Trading vs. Long-Term Investing

	Day Trading	Long-Term Investing
Primary Goal	Profit quickly from short-term price changes.	Build sustainable wealth over time.
Investment Timeline	Buy and sell investments within the same day.	Invest consistently for years or decades (buy-and-hold strategy).
Strategy	Trade based on the latest news, trends and algorithms.	Make consistent monthly contributions regardless of market conditions.
Success Rate	Extremely low. Very few are profitable.	High. Proven track record for building wealth.
Risk Level	Extremely high. You’re basically gambling with your money.	Moderate. Diversification protects you from the market’s ups and downs.
Diversification	Low. Often focused on single, volatile stocks.	High. Growth stock mutual funds expand your portfolio’s holdings.
Tax Impact	High. Your gains are usually taxed at ordinary income tax rates.	Efficient. Tax-advantaged 401(k)s and IRAs offer tax-free or tax-deferred investment growth.
Emotional Impact	Leads to high stress, constant pressure and wild volatility.	Builds patience, discipline and persistence over time.

Building wealth with long-term investing is a marathon, not a sprint—there are no shortcuts! Here’s what long-term investing looks like—and how it can help you build wealth over time.

1. Invest with a long-term perspective.

The best way to invest for the long haul is to use a buy-and-hold investment strategy. That means you’re buying shares of an investment and then holding on to those shares for a long time.

Investors with a buy-and-hold mindset don’t panic or make decisions based on fear or greed. They know the stock market has historically trended upward over time, so they understand that patience and discipline are the keys to successful investing.

2. Diversify your investment portfolio.

So, what should you invest in? We recommend investing 15% of your gross income in good growth stock mutual funds inside of tax-advantaged accounts like your 401(k) and Roth IRA. Since mutual funds are made up of stocks from many different companies, they give you a level of diversification that day trading single stocks doesn’t.

There’s a reason why most of the millionaires we talked to for our National Study of Millionaires said their 401(k) was the key to their financial success and not a single one of them said single stocks played a big role in their net worth.

3. Invest consistently over time.

Investing isn’t for the faint of heart. There will be days when checking your 401(k) account balance will make you want to scream or cry (or both).

But we’ve helped thousands of folks over the years who worked the proven financial plan we call Ramsey’s 7 Baby Steps and became Baby Steps Millionaires. And they’ll all tell you the same thing: You don’t need a crystal ball that can magically predict which stocks are winners and losers. What you do need is patience and persistence.

The investors who retire with dignity and enough money in their nest egg? They’re the tortoise, not the hare. No matter what’s happening with the stock market on a given day, they invest consistently month after month, year after year. It’s not a new approach and it’s not flashy, but you know what? It works!