Trading is often viewed as a high barrier-to-entry field, but this is simply not the case in today's market. Now, anyone with ambition and patience can trade, and do it for a living, even with little to no money.
Sounds fantastic? It is, and there are so many options available to people with the desire to put in the time to learn.
The New Era of Trading
Changes in technology and increasing volumes on the exchanges have brought about a number of very low barriers-to-entry trading careers. In some cases no personal capital is required, and in other cases a small amount of capital will be required to get you started, in order to verify your commitment to trading. With markets so interlinked, it's always open trading time somewhere on the globe, and many of those markets can be accessed with relative ease. This means that even people who have full-time jobs or children at home can trade – it is just a matter of finding the right market and opportunity.
This is not to say that trading is an easy business; it can be very tough to stay in for the long haul. As we look at some different trading alternatives available today, you will see that you are able to enter the market, but your ultimate success depends on you. We will look at these options in depth to see what they offer career-wise, or if they can simply be used to generate additional income.
Quit Your Job To Trade Stocks?
The Options Available
People often think that full-time traders with advanced degrees and a high pedigree only work for investment banks. Equally as common is the thought that, in order to trade, you need large amounts of capital and expendable time.
It is probably true that to get into an investment bank or onto a major institutional trading floor, you will need to have connections or a prominent educational background that sets you apart. But in this article, we will focus on how the average person, with extensive or very little trading experience, can enter into the arena of trading and creating wealth.
The first option – and likely the easiest because it is so flexible and can be molded around daily life – is trading from home. However, day trading stocks from home is also one of the most capital-intensive arenas. This is because the minimum equity requirement for a trader who is designated as a pattern day trader is $25,000, and this amount must be maintained at all times. If the trader's account falls below this minimum, he or she will not be permitted to day trade until minimum equity level is restored either by depositing cash or securities.
Therefore, potential traders need to be aware of the other markets that require less capital and have lower barriers-to-entry. The foreign exchange (forex) or currency markets offer such an alternative. Accounts can be opened for as little as $100 and, with leverage, a large amount of capital can be controlled with this small amount of money. This market is open 24 hours a day during the week, and thus provides an alternative to those who cannot trade during regular market hours.
The contract for difference (CFD) market has also expanded. A CFD is an electronic agreement between two parties that doesn't involve ownership of the underlying asset. This allows gains to be captured for a fraction of the cost of owning the asset. As with the forex market, the CFD market provides high leverage, meaning smaller amounts of capital are needed to enter the market. The stock market can also be traded using a CFD. While the stock is never owned, the contract allows profits/losses to be reaped from speculating on the underlying stocks or indexes by mirroring its movement.
High leverage does mean higher risk, but if a trader does not have a large amount of capital, this market can still be entered with very low barriers. Educating oneself on the risks involved and building a strong trading plan are absolute musts before partaking in any trading activity, but when you're highly leveraged, it becomes even more paramount.
Proprietary Trading Firms
Proprietary trading firms have become very attractive with their training programs and low-fee structures. If the idea of trading from home does not appeal to you, working on a trading floor might. A day trader working for a proprietary trading firm is typically a contractor, not an employee. He or she receives no wages or perks – just a share of the profits made from trading whatever the firm is into. The trader is provided with company capital (or leveraged capital) to trade and the risk is partially managed by the firm. While personal discipline is still very much required, trading for a firm takes some of the weight off of a trader's shoulders.
Working for a firm may also require working in an office during market hours, although some firms allow traders to trade remotely from home. The benefits of working with a trading firm can include free training, being surrounded by other successful traders, constant trading ideas, greatly reduced fees and commissions, access to capital and performance monitoring.
Many proprietary trading firms will accept people who have shown initiative in their backgrounds and have some education in their prior field. This is because the firm can monitor a trader's risk, and those not showing promise can be released with very little overall loss to the firm.
Pay in a firm is based on performance, and is normally a percentage payout of your net profits after fees. Some licensing may be required, depending on the structure of the company. Even if it's not, though, passing the Series 7 exam will mean that there are more firms with whom you are available to trade. Each firm operates a little differently, so find one that suits your needs, personality and circumstances. Some require you to use some of your own capital. If you run a search for a list of proprietary trading firms, you will be able to see what is available to you.
The Bottom Line
Once you've decided which trading method fits you the best, the next step is crucial. If trading from home is the main interest, you must decide what markets you will trade in based on your capital and interests. You must then make a comprehensive trading plan, which is also a business plan (trading is now your business) and decide how you will operate as a trader. From there, explore different online brokers and compare what they offer. Seek out a mentor or someone to help you. Then it is time to start trading.