ELI5: Day trading, affiliate links, "Earn money in your free time," etc.

May 11, 2023 4:54 PM

A friend is going all in on making a living through various types of online money-making ventures. I'm worried for her, but maybe that's because I don't understand these ventures well enough. Could anyone explain to me how these things work and how much risk is involved?

My friend has had financial difficulties for a while and it seems to be reaching a breaking point. Recently she's been talking a lot about day trading, affiliate marketing, and various other ventures that I've only ever heard mentioned by influencers selling online courses with promises of easy wealth. She's also been vocal about convincing other friends to join in, but doesn't mention specifics when it comes to how much she's been able to earn so far. She doesn't have an education or work experience in business, marketing, or finance, the bulk of her knowledge comes from internet research. I admit that I'm skeptical and worried she could lose money that she can't afford to lose.

I realize that I don't know nearly enough about these ventures to be judgy about them, and it could be that I'm worrying on her behalf for nothing. My only exposure has been via social media, which was not very confidence-inspiring. If you're someone who makes a steady income via day trading or posting affiliate links on Pinterest or similar, please educate me. I would also welcome informed opinions explaining why these might be risky as someone's sole source of income.

posted by keep it under cover to Work & Money (16 answers total)

Most of these are scams or pyramid schemes, I am sad to report. The day trading courses are frequently just a bunch of basic ideas pulled from free, online content - and please do what you can to encourage your friend to NOT day trade. It is extremely risky for well-educated people in good market times, and that is not now. If you friend IS dead set on it, ask her to “only do trades on paper” for 60 days — that way she can see if she would have actually made any money in real life before she invests a single penny.

Many of the other easy money ploys involve buying a lot of product from someone with their “sure-fire marketing plan” — and the only way you can simply break even is to get friends to buy the stuff off of you.

In general — if it’s a get rich quick promise, YOU are the thing someone else is getting rich off of.

Is there any way to encourage your friend to increase her skill set to something that might enable her to have a more reliable source of income?
posted by Silvery Fish at 5:14 PM on May 11, 2023 [11 favorites]

Day trading needs to be avoided at all costs. It requires a large investment and is effectively a competition between yourself and some very experienced people with a lot of resources. Barring extraordinary circumstances it is a competition you will lose. (as myself and several friends have)

If you live in a poor country then the economics of cultivating fake social media accounts and link propagation in general can work out. If you live in a wealthy country, well, there are plenty of people in poor countries willing to do the work so you can guess what the pay is like. The fortunate thing about that is you will discover it quickly and lose only the money you've put into classes and software.

MLMs (e.g. Pyramid schemes) are liberally spread throughout this space. The fact that she's trying to convince other people to join makes it sound like she's caught up in one of those.

Where I live currently the minimum wage is $11.54 USD -- per day. The people here can do everything she can do, so that's the workforce she'll be competing with.

There may be some specialized niche she can find but as for the general classes: as always, if the people teaching these classes could be making good money actually doing this stuff they wouldn't be teaching classes.
posted by Tell Me No Lies at 5:17 PM on May 11, 2023 [6 favorites]

Best answer: Day trading isn’t a scam, in the sense that putting your life savings on the Detroit Lions to win the Super Bowl isn’t a scam. It’s just a fancy form of gambling. Some people are good at gambling. Maybe your friend is one of them. (Although those people generally don’t bet on the Lions.) I have a friend who traded well enough to quit his job, but he was kind of a high achiever to begin with.

The thing about trading, and especially day trading, is that it requires strong analytical skills, incredible attention to detail, and laser focus. And if you have those skills, chances are you can probably find a regular job pretty easily, too. In that respect it’s also like professional gambling: the people who do it successfully are people who would otherwise be attractive job candidates but for whatever reason don’t feel like participating in the traditional labor market. The people who do it trying to make a quick buck usually lose everything.

The other thing about day trading is that it happens so quickly that, by the time somebody has given you a tip, it’s too late. You have to make your own system. My friend used to sit in his garage with like four monitors of spreadsheets looking like that Charlie Day meme. And if you’re using a system that hundreds of other people have bought, you’re competing against them. (Unless they go broke before you, but that doesn’t bode well for the system, does it?) Trading, like all gambling, isn’t a cooperative enterprise.

So yeah, trading isn’t a *scam*, but nothing you’ve said about your friend gives any indication that she’d have success with it. Just like with casino gambling, she should only go into it if she’s ok losing what she’s putting down.
posted by kevinbelt at 5:46 PM on May 11, 2023 [10 favorites]

Here's the short version: it is very likely that your friend is about to be deeply, deeply in debt. She will also, likely, try very hard to get you to "invest" in her schemes to help dig her out of that hole. If you do that, your money will also disappear. Whether or not you do that, your friendship is likely to suffer. Sorry.
posted by kickingtheground at 5:58 PM on May 11, 2023 [9 favorites]

Here's what the U.S. Securities and Exchange Commission has to say about day trading.
posted by heatherlogan at 5:59 PM on May 11, 2023 [3 favorites]

Your friend is heading down a very dark path that will (statistically) result in financial ruin. She probably knows this on some level, and is trying these things as a "hail mary" play -- success or bankruptcy!

...it almost always results in bankruptcy.

With respect to the online courses -- if their "system" really worked that well, why would they waste their time earning a relative pittance with online courses? Maybe they're being "philanthropic" well in that case why aren't the courses free? Well, maybe the influencers want to cover their costs -- there are no costs, it's the internet, they could just make a post online in any one of a billion places for free. These courses are scams, and I guarantee a nontrivial percentage of them boil down to "make online courses and sell them to suckers!" (yes, really)

Day trading has been covered in detail above, but I would just add: be very very fucking afraid of "meme stocks" on Reddit. There are many subreddits dedicated (by grifters) to convincing desperate people that their only chance of financial freedom is by investing their life savings into a shitty penny stock that they promise ("NFA"; Not Financial Advice!) will skyrocket to $420.69 per share (this figure was not invented by me, and yes that's how stupid these things can get). These are people who will try literally anything (including violent threats) to get your friend to "invest" in a stock that's trading at twenty cents, and which will go to zero in less than two months (because the relevant company has filed for bankruptcy) on the vague promise that some billionaire wants to get involved in the stock due to the "intrinsic value". Not Gonna Happen.

To sum up: be extremely worried about your friend, resign yourself to the possibility that they will soon become an ex-friend, and for the love of god whatever you do, DO NOT get involved in these schemes yourself.
posted by aramaic at 6:09 PM on May 11, 2023 [5 favorites]

The devil is in the details, but affiliate marketing is not necessarily a terrible option . For instance, if your friend had an affiliate link to a product sold on Amazon, she would earn a small commission on the product purchased through her link. This is a legitimate way for some people to earn money. However, it may not be particularly lucrative for someone who doesn’t generate very many referrals. While your friend isn’t risking any of her own money, she is potentially risking her relationship with others if they don’t appreciate her shilling for said product.
posted by oceano at 7:42 PM on May 11, 2023 [1 favorite]

If it were easy to make money by day trading and other such schemes, the people selling courses on how to make money doing so would just do that (allegedly) profitable thing. And yet they don't, they sell you courses on how to make money doing such and such. What does that tell you?
posted by Candleman at 9:56 PM on May 11, 2023

I would also welcome informed opinions explaining why these might be risky as someone's sole source of income.

Teaching You To Trade (Gary's Economics, YouTube, 19m7s)
posted by flabdablet at 10:36 PM on May 11, 2023 [2 favorites]

Could anyone explain to me how these things work and how much risk is involved?

The tl;dr ELI5 explanation: trading is a global competition. Making money trading requires being better at it, better equipped, better informed and, crucially, better funded than those you're competing with.

Buying a day trading course on the Internet and expecting it to lift you out of poverty is like buying a tennis racquet on eBay and expecting it to win you a Grand Slam. Not. gonna. happen.
posted by flabdablet at 10:47 PM on May 11, 2023 [1 favorite]

Best answer: I am what some people refer to as a day trader. I started out trading on the floors of the Chicago exchanges. I used to hire and train traders.

Day trading is not for anyone trading with rent money as they say. I can give you all sorts of statistics, but the short of it is that, as a betting man, I am betting against your friend being successful. I would actually be willing to take the other side of their trades, sight unseen, until they stop.

However, if the time frame changes and they are investing rather than trading, that is different but capital intensive.
posted by JohnnyGunn at 11:21 PM on May 11, 2023 [8 favorites]

Best answer: Okay, to some extent this is my world. For nearly twenty years, I've been a personal-finance blogger, so I'm exposed to both day trading and affiliate marketing. I don't do much of either myself, but I'm plenty aware of it.

Neither of these things are "scams" necessarily. Nobody is bilking anybody out of money.

That said, day trading is problematic. It's a great way for people to lose money. Your friend, as a complete novice, will be trading against computer algorithms *and* people with far more knowledge and experience than she has. Even if she uses her own computer programs, she is very very likely to lose. Like @JohnnyGunn, I would bet against her too and would be happy to take the other side of her trades.

Affiliate marketing is a different story. There's little risk of loss there. There may not be much chance of winning, but there's no real chance of losing either. At worst, she's going to burn a bunch of time (and, possibly, reputation). She won't lose much money. And the truth is that affiliate marketing can be very, very lucrative. Like I said, I don't do much of it myself and I still make several hundred dollars per month. If I put even a tiny bit of effort into it, that'd be thousands per month. I have friends who (no joke) make millions per year with affiliate marketing. Now, they've been doing it for a long time (10+ years) and they know what they're doing, but that's an example of what's possible. These guys do this without being scammy and without a bunch of fanfare. They just quietly run their websites (none of them are into video) and those websites generate income. The key thing to understand, though, is that this takes *work*. It's a full-time job for these people (and their teams). It's not "oh, I'll just throw up an affiliate site and it'll make money". It's just as much work (if not more) than most jobs, but the income is far greater.

The bottom line? Neither of these are scams, but day trading is a fantastic way to lose money. Affiliate marketing might not make money (although it could), but it's not going to lose money either (aside from some initial setup costs which are minimal).
posted by jdroth at 7:12 AM on May 12, 2023 [3 favorites]

Seconding Candlemas. If these folks were truly making money doing the thing, they'd just do the thing. They wouldn't spent time an effort wrapping the thing up in a training product. In fact, they'd do the opposite and try to keep you from finding out how to do the thing, because you'd be competition.
posted by Wild_Eep at 7:31 AM on May 12, 2023

Affiliate marketing, picking up a lucrative niche one youtube, and similar are not terrible side hustles. A small proportion of people make good money after a while, but it's a lot of effort. Like second job levels of effort. Many people make very little because they picked the wrong niche, or are just unlucky. Despite putting in a lot of work there's no guarantee of success. It is however low cost and not going to scam your friend out money.

Day trading is, as others have said, the same as professional gambling. It can be done but it's as much work as doing a well-paid job and it's much more risky. Unless your friend is already really interested in the stock market, it's probably easier just to learn to play poker to professional standards.

As you suspect these ideas are going to cost your friend time and money, possibly a lot of money, and possibly all of their friendships. If your friend is interested in get rich quick schemes, mult-level marketing, etc then they might not be interested in boring sensible advice.

The best way out of a financial hole caused by far too much debt and not enough income is probably bankruptcy. (Assuming a regular job, and penny pinching isn't going to cut it)

I think the best way to increase your income is to devote 40 hours to the best full-time job with your existing skills, and then spend another 10-20 hours a week to a side hustle or job, or training/qualifications that will improve your income in your main role. This is how JD Roth, who chimed in above, got from being in quite a bit of debt, to a very respectable income and bank balance. His pick of side hustle worked out so well for him that he is now properly wealthy. So it can be done, but it starts out the boring way first.

Do not get sucked in to anything. Particularly buying things from MLM. The sooner any MLM efforts fail the less money your friend will lose overall.
posted by plonkee at 5:55 AM on May 13, 2023

I mean... people DO make money with affiliate links, niche blogs, SEO and then selling leads, being a life coach, selling stuff on Etsy, etc. You don't sound like you know what specifically she's doing, so it's hard to say. A lot of people try and fail, or burn out before they get very far, or don't earn enough to make it worth it. And even if they succeed, they can lose their income when the algorithm changes or the advertising costs go up or whatever. But these are all real things.

I'd primarily caution her to minimize her risk and investment. Any one pathway might not be a good match for her skills. She should expect to have to try a lot of things and put in a lot of work testing approaches that may or may not catch the wind. So she should minimize investment at every turn. Cancel all the free trials on time if she hasn't been using the tool (e.g., cancel the hosting if she hasn't built the website). Do a tiny test of the ad to make sure the cost/benefit is there before scaling up what she's spending. Avoid the expensive courses. (Suggest she watch negative reviews of the course if she's thinking of paying for one. If she really wants to follow some guru, spend $ on monthly membership to a coaching forum instead of $$$ all at once on a course.) Anyway, best of luck to her.
posted by slidell at 11:50 PM on May 13, 2023

Most of them oversells and overpromises while understates the actual effort and difficulty involved.

I wrote this rant the other day on reddit:

I'm sure you've seen those videos on Youtube or any other video platform with clickbait claims:

Best side hustle to start in [insert year]
Make [insert amount] per day with [insert gimmick]
How I made [insert amount] with [insert gimmick]

Most of them wants to sell you a course, or needs a service that require $$$ after a trial period, or a higher tier of service that cost $$$ vs the limited free tier. That's fine as long as they are clear about it.

But there are certain videos that are outright deceptive, making outrageous income claims like make hundreds per day, and make the process seems incredibly easy, and only takes minutes with no skill or effort. Those are the dangerous ones, as they seem almost plausible, until you realize the video hid most of the truth.

I recently ran into a video where the YTer claimed that you can make 4 figures with Google News. What's her "secret"? Take a Google News niche you like, find an article, spin it with an AI-rewriter, polish that yourself, then submit that to a major magazine that pays $1 per word and make hundreds per article.

What utter (bleep bleep)!!! If that were that easy, all freelance content writers would be out of a job!

The old joke from George Bernard Shaw applies: "Those who can, do. Those who can't, teach."

If it's so easy, why isn't this YTer doing it and make $$$, but instead, is making videos about it?

It's OBVIOUSLY not that easy.
* Magazines pay "up to" $1 per word.
* Magazines RARELY accept unsolicited submissions, preferring to layout their entire publication schedule MONTHS in advance.
* And finally, magazines are well aware of ChatGPT spun articles and there are tons of "detectors" for them.

Sure, this particular bogosity doesn't cost you anything except TIME, but the time was utterly WASTED on FALSE HOPE, and some noobs may even be tempted to buy service(s) that cost even more money for a CHANCE of making that big money... unless they are skeptical and fact-check those claims.

TL;DR -- Be wary, be skeptical, be safe. Don't trust "make money fast" claims, no matter how reasonable it seems.

Rant mode off.

Most of the "make money on Youtube" claims sell lessons that range form as little as $50 to $1200 (payable in 12 monthly payments of $100).

There are a few guys who does give genuinely useful info (but obviously not everything) but it's hard to separate the wheat from the chaff, as it's quite easy to "clone" a video on Youtube if you want to "surf" a trend. Just copy the general beat of the video, slightly reword the content, remake the slides, and done.

Most of the affiliate marketing thing are useless if you don't produce useful content that draw people in to sell them stuff. So they can talk about profit margins all day, but with no traffic to the site or video, you can't sell anything. And if you can build traffic and audience with video or content, you don't need affiliate marketing. It's just "multiple streams of income" blah blah blah.

But you have to build an audience first, THEN sell them something they may be receptive to. If you know what that is, you pick the item and do affiliate marketing. If you don't, Youtube will just serve them ads and pay you for that.

I am not going to talk about daytrading as I know just enough to know it's EXTREMELY risky and you get killed on fees.
posted by kschang at 1:56 PM on May 14, 2023