Want to know how to make money fast? Unlock the ability to earn 7-figures or more with these two passive income business models. Let’s compare the pros and cons of each to find out which is the best fit for you.
Day trading is buying a stock (or stocks) and selling them the same day in hopes of turning a high profit. Traders usually buy and sell stocks quickly in a matter of seconds or minutes to catch high returns. You can use your own personal reserve of cash or borrow money and pay it back with the returns you make.
Because day traders can make a lot of money in just a few minutes, some people consider day trading to be passive income and put it in the same bucket as an Amazon FBA business. But in reality, the two business models couldn’t be more different from one another. This guide takes a look at these two ways to make a lot of money quickly and online, and compares them.
The day trading basics
Day trading is a practice that leverages market fluctuations happening throughout the day in the stock exchange. There are a few ways to do this, and here are the most common day trading strategies.
Momentum traders focus on finding stock price highs and lows that don’t fit that stock’s usual pattern. Instead of looking at a company’s revenue or earnings, a momentum trader uses technical analysis to find unusual fluctuations — and then capitalizes off of it in the short term.
Day traders can scalp stocks to turn a high profit, but you’ll need to move quickly. Instead of banking off of a few high-ticket stocks, scalping makes small returns on several stocks throughout the day. The profit margins are very small, sometimes around 1% or even less. But when you multiply a 1% return across a large number of orders, profits can add up.
Day traders who identify short-term stock price patterns and peaks are swing trading. Swing trading looks at stock price peaks over the last few weeks or even months, and then assumes that peak will be reached again in the near future. Day traders use this peak price as a clue — it tells them when to sell a stock at the highest price.
What you need to be a day trader
There’s a pretty big difference between someone who invests for fun and someone who professionally invests full-time. Professional day traders need plenty of knowledge and almost infinite resources to successfully turn high profits in short periods of time (and mitigate huge risks along the way).
You’ll need access to real-time market data, and know how to interpret that data quickly and accurately. One misstep or one poor exit strategy could leave you with thousands of dollars lost. And even then, data can be deceiving if you don’t have a firm grasp of your market.
Day traders also need a ton of money that they can play with. Because not all trades are successful and the market is volatile, investors need to have enough capital they can risk without going broke. For example, if you have $100,000 to your name, you may want to consider only investing a certain percentage of that money.
This way, if a trade doesn’t go the way you expected it to, you haven’t lost every last cent of your original $100,000. Plus, you’ll need some money to cover commissions or possibly brokerage fees.
Why day trading is risky for most people
Day traders have to have three things: a large amount of capital to invest, an incredibly high tolerance for risk, and a deep understanding of how markets behave. And in reality, most people don’t have all three — this exposes them to serious risk, and the United States Securities and Exchange Commission (SEC) has taken notice. According to the SEC, people looking to day trade should:
Know that day trading usually means borrowing a lot of money
The majority of day traders borrow money to buy stocks. In theory, if you turn a high enough profit, you get to pay the loan back and keep what’s leftover. But if you don’t turn a profit, you’re left owing money you probably can’t pay back.
Understand that day trading isn’t something you can do in a few hours
Professional day traders who are successful spend more than an hour or two a day because it’s a full-time job. You’ll spend a lot of time looking up data, charts, and market performance, and then trading accordingly.
Be aware that day trading is ripe with scams
Some firms, gurus, and get-rich-quick websites advertise “quick and sure profits.” It’s easy to get in over your head with a firm that’s lending you thousands in capital. Always ask whoever is advertising these get-rich-quick claims how many of their clients have made a profit, and how many of them have lost everything.
What is an Amazon FBA business?
An Amazon FBA business is an e-commerce business with some twists. Like an e-commerce business, you sell products online to customers (but in this case you sell through Amazon instead of other platforms like Shopify or Etsy). Customers buy your product and then it’s shipped directly to their door.
But with Amazon FBA, your products are stored in Amazon’s warehouses and they take care of the shipping and customer service inquiries for you. Amazon provides these services in exchange for a percentage of your sales.
In addition, you own the products you sell and the brand that markets those products. This means you’re completely in control of price points, advertising, and growth. And since you own every part of the business, you have the power to sell it to a potential buyer.
How does Amazon FBA compare to day trading?
The Amazon FBA business model is a much more effective way to generate passive income compared to day trading, and there’s a lot less risk. Let’s take a look at the table below to cover the major advantages and disadvantages of each.
|Amazon FBA||Day Trading|
|How risky is it?||Relatively low risk||Very high risk|
|What are the start-up costs?||A few thousand dollars||Several thousand dollars (or more) either from your bank account or borrowed from a lender|
|How much time do you need each day?||A few hours in the beginning, then down to a few hours a week||At least 8 hours|
|How easy is it to scale?||Very easy||Difficult (if not impossible)|
|Are you building a business you can sell for even more profit?||Yes||No|
To summarize, your Amazon FBA business will be less risky and less expensive to start, it’ll take up less of your time each day, and you’ll have an asset that’s ready to scale or sell. If you choose to invest your time and money in day trading, you’re likely to have the opposite experience and possibly lose everything in the process.
How to make money fast and generate passive income online
Everyone dreams of no boss, no rigid schedule, and no caps on income. So it should be no surprise that entrepreneurs everywhere work hard to build passive income streams. But it’s important to know that some passive income models are better than others — and it can be hard to tell the difference at first.
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