Trading is a tough job, but definitely has its perks. What many people don’t know is that you can earn a living using very little of your own money, and in some cases none of your own money. Here is how to get started in day trading.
How to Get Started in Day Trading – Anyone Can Do It
Most want-to-be-traders are under the false impression that they need lots of money or need certain connections to become a day trader. That’s not the case. There are lots of options for want-to-be-day-traders that require very little capital (if any capital) and will provide you with the tools you need to succeed. If you go at it completely alone, then yes, you will need some capital to fund your trading and pay your bills (see How Much Money Do I Need to Become a Day Trader), but going at it alone isn’t the only option.
Day trading has a certain allure to it. Making trades and walking away at the end of the day, with hopefully some money in your pocket (and possibly more money than most jobs), is a good feeling. First off, let’s dispel a myth – day trading is not gambling. If you control your risk and follow a proven plan, then the odds are in your favor. That said, most traders lose money because they fail to control risk or don’t have a tested and proven trading plan (or they don’t follow it).
So let’s look at the options available to those who want to start day trading, or who are looking for a way to progress their day trading career.
How to Get Started in Day Trading – Proprietary Trading Firms
There are many proprietary day trading firms all around the world that hire and train people to become profitable traders. Each firm is different; some require no capital from the trader and others require a deposit. No experience is needed, although it is common to have to go through several interviews which address how you psychologically respond to stressful situations, how well you can follow rules and how you balance aggression with logic and patience.
The process starts by simple sending a company your resume with your current background, no matter what it is, highlighting your entrepreneurial spirit and ability to work under pressure (see Traders, Don’t Make These Resume Mistakes). Some countries have licensing requirements, while others do not. A firm may sponsor you to get the required licenses or they may require you get them on your own. The process for passing the necessary examinations or interview process is not an obstacle for most ambitious people who are eager and humble enough to learn.
Once hired, the firm will provide you with capital (or leverage the capital you provided) to trade a particular market, or several markets. Training is generally provided and the extent of what they teach varies greatly by firm. Some will push you to trade a proven method, while others encourage the trader to develop their own methods.
The firm will often take a percentage of your profits and generally there are small fees associated with each trade. These fees vary from $0.05 to $3.00 per 1000 shares traded (ECN credits or debits may add or subtract from this amount). Even a firm on the high end of the fee scale usually provides lower fees than what is available to retail traders trading on their own. Each firm will have their own balance of fees and profit pay outs. Low fees will often mean the trader gives up a higher percentage of their profits, and high fees will mean a lower percentage of your profits is filtered to the company.
The percentage of profits the trader is paid generally ranges from 50% to 100%. Remember though, there is always a trade off. High fees can make it hard to make a profit, and 100% of nothing is $0. So in some cases a 50% payout of a small profit, due to lower fees, is more favorable. It is important to consider whether your own money is at stake, or just the firms capital. If the firm is risking their capital generally pay outs will be lower, or fees higher, or some combination of those.
Most firms do not hire you as an employee; rather you are contracted, and basically have your own business under the organization. This allows you to write-off business expenses (consult the documentation and your own tax advisor). Some firms allow you to trade from home and some will require you be in a office.
If you want to start trading, it is something to look into. There are day trading firms in almost every major city throughout the world.
For a list of proprietary trading firms, see: http://leverageacademy.com/blog/proprietary-trading-shops/ If you don’t find one on the list that caters to traders in to your area, do a Google search for your current city and “proprietary trading firms,” or search for proprietary trading firms that will allow you to trade remotely from anywhere in the world. The DTA also works with proprietary traders around the world. Sign up for their free day trading newsletter and learn what they do. If it sounds good, contact them and let them know you are interested in proprietary trading (they also offer excellent day trading courses if you want to trade on your own).
How to Get Started in Day Trading: Do It Yourself
Going at it alone is a tough but rewarding journey. You are in full control of everything you do, the fees you pay, how much you make/lose, your strategies and when you work. Full control means full responsibility; you alone determine your success, even if using an automated trading system. There is a definitely a lot to learn, but you keep all the money you make. The downside is that you need to fund your trading and education (or educate yourself). If you dedicate yourself to day trading, practicing strategies every day, it will likely take a year or more before you start to see consistent income.
I recommend you assume it will take at least a year before you become consistent enough to draw an income from your day trading. This means you will need to fund your trading account and also have money left over to pay your bills. While you are learning to trade and gaining consistency, you may wish to have a part time job to ease the financial pressure.
If you are a very social person, trading from home, by yourself, may be torture. Remember though, here are always chat rooms or social media discussions you can connect with if you need some social engagement. If you have some friends who trade you can also strap on headsets and chat with each other while you trade, recreating a trading floor feeling. If you like being on your own, and/or dislike rush-hour traffic, then day trading from home is a great option.
As a general guideline, to start day trading stocks you should have at least $30,000. Stocks are the most expensive market to get started in. To start day trading forex, $3,000 is recommended, but you can start with as little as $1,000 (or less). Keep in mind though, the smaller amount you deposit, the smaller your income will be initially. For futures, trading a product like the S&P 500 Eminis, you should start with at least $3,500. See How Much Capital to Day Trade for a breakdown.
Day Traders, Manage Your Expectations
Regardless of whether you decide to trade on your own, or trade with a firm, don’t go into it expecting to become rich. Trading offers a life style. Very few traders become rich…at least not over night (see Why Day Traders Make Big Returns But Aren’t Millionaires). Trading offers a way to make a living while having loads of free time to do things you enjoy, spend time with family and friends, travel… and not have to answer to a boss or go to a job you hate everyday. Don’t underestimate these perks, as they are what create quality of life.
Gaining consistency and making money will take time. If money is your only goal for trading, you will likely burn out before the money shows up. Trade because you like it and want to do it.
If day trading or swing trading forex appeals to you, and you wish to do it on your own, check out The Forex Trading Strategies Guide for Day and Swing Traders eBook
How to Get Started In Day Trading – Trading Alternatives (Swing Trading & Investing)
Day trading requires that you are be able to sit at your computer and trade for at least a couple hours a day (two hours day trading is all you need). If this isn’t an option for you, then you may want to consider swing trading or investing as these are less time-intensive options.
By: Cory Mitchell, CMT