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As a foreigner in Canada, can I start day trading with US stocks?

I am a student in Canada and I came here in December 2017. I've had a lot of interest in day trading, and in few months I will be finished with my studies and I will have a valid work permit and that's when I want to get started. I want to day trade but I only have $1,000 to start with. Many videos I've watched about day trading said that you can start as low as possible and some said that if you want to trade regularly you need at least $25,000 USD in your account for PDT. How much I need to get started? As a foreigner in Canada, is it okay if I day trade? Can I trade US stocks or any other country's stock? How do I pay taxes if I am making money?

Stocks, Taxes
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March 2019

Yes, to anser your question, you can trade from anywhere. I wasn't going to respond or contribute more to your question because my only advice would be to reconsider. And it sounds like you are too ademant about day trading to do so. I get it, trading can be exciting and the opportunity to beat the market tempting. Aside from playing the lottery or gambling in Vegas, where else are you able to seek out supra-normal returns. It allows you the opportunity to pick that stock that may outperform the market or to test your proprietary trading strategy as the next “sure thing”. Or maybe you are just seeking the rush from being in the game. However, simply based on the expected risk-adjusted return, day trading is a losing strategy. 

I was a successful trader in Chicago, then an executive for a proprietery trading firm. At my peak I traded on average over $1Billion/day. And do you know how I forecasted the markets? I didn't. I had no clue where the markets were headed or which securities would outperform, and that's despite being a technical analysis expert (with over 30 charts on 9 screens). In fact I never met any professional who knew where the markets were headed. I made money mostly by swing trading the market volatility, trying to get on the right side of a move, then surf the market for a profit. Many times I would get caught in positions, not knowing if they would come in. And that's trading with the latest technology, co-located servers, quickest news aggregation services, and every other advantage that professional traders have. When you start to day trade, you'll be competing with those folks. It'll be very likely that one of these professional traders, or Godlam Sachs, or any of the other high-powered trading firms are on the other side of your trade. What makes you so sure that you'll know something that they don't? I think I like their chances better than yours. And even more than 90% of these professional traders fail. Turnover is high.

Here’s what I tell individual investors who are thinking about day trading to consider:

  • You will be competing against professionals who use the latest technology, co-located servers, and immediate news aggregation services. Even with these advantages, most professionals fail (over 90% of traders don’t make it).
  • Many who succeed usually found an edge swing trading market volatility. It’s virtually impossible for you to do that successfully net of costs.
  • When you do get filled, it’ll be likely that an institution or a professional is on the other side. What makes you so sure that you know more than the counter-party?
  • By the time you get actionable information from the financial news channels on cable, it’s already being priced into the markets. Professionals rely on immediate news aggregation services that charge considerable fees for access. For all practical purposes, if you are looking for an edge in the short-term, the news on these financial channels is already outdated.
  • And the conveyor belt of “market-gurus” and talking heads in the financial news media make predictions that on average turn out to be worse than a flip of a coin. Why would you follow their advice?
  • Consider also that with high-frequency trading, competition is in the milli and micro-second time frames. Additionally, algorithms can filter news headlines for actionable word triggers, then instantaneously begin to price that information into the markets.
  • Technical and fundamental analysis is usually useless as a trading edge. Mindless strategies like mean reversion work until they don’t and you suffer a blow-out. Fundamentals are priced in. And no one can predict tomorrow’s news.
  • Backtested and paper trading strategies don’t translate well to live markets.
  • We are not wired for consistent emotional risk preferences. We tend to take profits much sooner than we get out of losses. So, we’ll stubbornly hold on to losing positions longer, hoping that the market comes back in our favor. This means that our individual losses are usually much larger than our individual gains.
  • Security picking and market timing are myths. On the contrary, decades of data, research, and real-world evidence suggest that less than 2% of managers have shown any skill to outperform the markets net of costs.
  • Disciplined investors tend to perform much better than those who try to beat and time the markets.

What does this all mean for the individual investor? Actually, it’s awesome news. It means that it’s not necessary to take on so much uncompensated risk. You don’t have to try to outguess or outwit the markets to be successful. It also means that evidence-based investing does not equal average. You can still capture sources of higher expected wherever they may occur. Stick to a simple, well-diversified, low-cost portfolio of index or asset class mutual funds for the long term and you’ll already end up doing better than most of your peers.

Good luck. 


March 2019