How Day Trading Can Create a Dangerous Addiction

May 4, 2023

The stock market graph of a day trader who has a day trading addiction

Key Points:

  • Day trading, facilitated by online platforms like Robinhood, has gained popularity, resembling gambling due to its high risk and speculative nature.

  • The accessibility of online trading platforms has attracted individuals seeking quick profits, but day trading poses significant financial, social, and mental risks.

  • Day trading addiction shares psychological factors with other forms of behavioral addiction, driven by the thrill of success, fear of missing out, and the desire to recoup losses.

  • Consequences of day trading addiction include financial ruin, isolation, stress, and potential reliance on substances for coping.

  • To mitigate risks, individuals are advised to educate themselves, set limits on trading activities, and be aware of signs of addiction, seeking help if necessary.

Is Day Trading gambling? Our research uncovers how Robinhood and other retail investor platforms are causing day trading addiction.

Day trading involves frequent, speculative stock trades within a single day. While it requires strategy and analysis, it shares similarities with gambling due to high risk and uncertainty. While day trading demands careful analysis, technical skills, and discipline, it's also laden with risk and uncertainty, making it a contentious topic in the financial world.

Can Day Trading Reinforce Dangerous Gambling Behaviors?

When an individual hears about gambling, the mental image conjured is a dimly lit, musty, casino floor or a crowded sportsbook with rowdy, passionate fans losing and winning huge sums of money. However, gambling has evolved. It’s no longer just in casinos, sportsbook, and local racetracks, there’s another form of gambling that's becoming increasingly popular, accessible and just as dangerous: day trading.

Day trading is the practice of buying and selling public equities (also known as stocks), options, or other securities within a single trading day, and often within a single trading hour. The stated goal is to profit from minute fluctuations in the market, but day trading can be a risky and even addictive activity, not to mention financially disastrous. Online day trading, when done poorly without control, has the potential to be as ruinous as other problem gambling behaviors.

The Allure of Day Trading for the Modern Gambler

The spike in popularity of day trading is easy to understand. With the rise of online trading platforms such as Robinhood, Public, Etrade and more as well as the commission free trades they offer, anyone with an internet connection and a few thousand dollars can become a solo day trader. Though there have been few success stories, day traders who have been successful and earned lucrative returns - thousands of dollars in a single day and millionaires overall from their trading activities - day traders often lose it all and destroy relationships with families, colleagues, and friends in the process. This potential for high returns can be incredibly tempting, especially for people who are struggling to make ends meet.

What are the Risks of Day Trading?

While the potential of lucrative returns are strong, the financial, social, and mental risks of day trading are significant. The stock market is notoriously volatile when trading day to day, and even experienced traders often lose money. For inexperienced day traders who may be less able to properly evaluate equity opportunities, the risks are even higher.

In addition to daily market volatility, day traders also face other, more complex risks. They can overtrade, resulting in significant financial losses or may be tempted to make impulsive trades based on heightened emotions rather than logic and data. Finally, and notably when examining day trading’s close comparable cryptocurrency trading, day traders may fall prey to scams or fraud. There are many unscrupulous individuals and companies that prey on inexperienced, retail day traders, promising them quick and easy profits. A single scam or fraudulent action can result in significant financial losses and can even ruin a person's financial future.

Why do People Day Trade? What’s The Psychology Behind Day Trading?

Day trading addiction is a real phenomenon, and it's caused by the same psychological factors that drive other forms of behavioral and process addiction.

A primary driver of day trading addiction and why it is so hard for retail day traders to stop is the thrill of the chase and the emotional highs they can acquire from a successful trade. Day traders are gambling. They are constantly seeking the next massive score and the anticipation of a big payday can be incredibly exciting. Despite the near impossibility logically of this event, the mere possibility of such excitement triggers the release of dopamine in the brain, the same chemical that is released during drug use or other addictive activities. Another factor that contributes to day trading addiction and why retail traders find it so hard to stop is the fear of missing out. Day traders worry that they will miss out on a big opportunity - and the resulting huge score - if they do not stay glued to their computer screens all day. This fear of missing out can be incredibly strong and lead to compulsive trading behavior. Finally, as a day trader’s losses begin to increase, day trading addiction is fueled by their desire to recoup money that has been lost. When a day trader experiences a significant loss, they often feel compelled to keep trading in order to “win the money back” or “trade out of it” (making up for their financial loss). This can be a dangerous cycle that leads to even more losses, and ultimately ruins the individual in question who is addicted to day trading.

Day Trading Can Ruin Lives

The consequences of day trading addiction can be severe. In addition to financial losses, day traders may experience significant mental, behavioral, psychological, and emotional distress. Day traders can become isolated from family, friends, and colleagues as they spend time glued to a screen, constantly losing funds. They will also most likely suffer from significant stress, anxiety, and trauma as they try to navigate the ups and downs of the naturally volatile stock market. Day trading is also a pathway to other forms of addiction as a necessary coping mechanism. Day traders often turn to drugs, alcohol, or other substances such as opioids to manage the emotional stress and anxiety of day trading.

Finally, day trading addiction can lead to financial ruin. Even the most successful day traders experience significant losses. Those who are addicted to day trading and unable to rationally assess the trades they are making may continue to trade even when it becomes evident they are losing money. This results in significant debt, bankruptcy, crime, theft, and other financially related problems.

Day trading can be a dangerous activity that leads to day trading addiction and financial ruin if not monitored and practiced correctly. While it can be tempting to begin day trading to potentially make a few dollars, it's important to understand the risks and to approach day trading with significant caution. If you are considering devoting any time and energy to day trading, it is important to educate yourself about the stock market and to have a solid trading strategy in place - most importantly with mental and financial limits you have decided upon in advance. This self education can involve taking classes, reading books about successful trading strategies, or even speaking with mentors and friends who have significant trading knowledge. You may also work with a financial advisor who can help you develop a trading plan that’s right for your financial goals.

Among the most important things one can do is set limits on your day trading activities. Those limits can take the form of deciding to only trade for a certain number of hours per day, or to only trade with a defined amount of money you can afford to lose. Setting these limits can help individuals avoid becoming addicted to day trading and stay focused on longer term financial goals while withstanding the volatility of the market.

Lastly, it is important to recognize behaviors that suggest an individual is addicted to day trading and cannot stop day trading, and seek help if necessary. Assorted signs of day trading addiction may include:

  • Spending more and more time day trading or thinking  about day trading

  • Neglecting other responsibilities in order to day trade stocks

  • Becoming obsessed with the stock market and constantly checking stock prices while ignoring many other things that may be more pressing

  • Feeling anxious, stressed, restless or irritable when not trading stocks

  • Continuing to trade even after experiencing significant losses

If you're experiencing these symptoms, it is important to seek help from a mental health professional or day trading addiction specialist. They will be able to evaluate your behaviors, help you understand the underlying causes what is resulting in an addiction to day trading, and develop a plan to begin your recovery journey. There are programs that help day trading addiction.

Day trading is a new form of gambling addiction and can be a dangerous pastime that leads to addiction and financial ruin. While it may be tempting for an individual to day trade, it is important to approach any financial activity with caution and understand the risks involved. By educating yourself on the stock market, individual public equities, setting limits on your trading activities, and recognizing the signs of addiction, you can avoid falling prey to this dangerous activity and can protect your financial future.


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