Modern technology has given aspiring traders access to a wide spectrum of financial markets, creating the possibility of an individual being a part-time day trader as well as a full-time employee. As a result, day trading is seen by many as a great way of supplementing an established income without having to acquire a second job.
Often, a period of success in the marketplace prompts one to raise the question: "Can I day trade for a living?"
Taking The Plunge: From Part-Time Trader To Market Professional
Making the transition from part-time trader to full-time market professional is a potentially rewarding, yet perilous, endeavour. Day trading as a profession is a completely separate undertaking from trading as a hobby or secondary venture. In order for an individual to survive in the ultra-competitive environment, one must possess the talent, discipline and passion for the financial markets.
Before typing up a letter of resignation, a thorough understanding of what the life of a day trader entails is necessary:
- Job Security: In comparison to regular employment, day traders make money on a periodic basis. Profits are dependent upon winning trades, which are commonly a product of favourable market conditions. There is no such thing as a "guaranteed" paycheck in day trading. Great financial rewards are possible, but capital loss is an undeniable aspect of the business. Simply put, when losses are bad enough, there is no more job.
- Physically and Mentally Demanding: The physical and mental demands of day trading solely to pay the bills are substantial. Psychological stress is a big part of the profession, and can have a major impact on a person's physical well-being. The marketplace can be a pressure-packed atmosphere, where substantial amounts of money change hands every second. As a day trader, the emotional roller coaster of being ahead one minute and behind the next can have a profound impact upon one's attitude and overall wellness.
- Solitary Pursuit: Day trading requires an individual to make many decisions every session. Questions regarding when to enter, exit, cut losses or let profits run demand frequent personal attention. While a winning trade may provide confidence and satisfaction, losing trades are capable of discouraging and disheartening any market participant. Ultimately, success or failure falls upon the trader.
Day Trading For A Living: Necessities
Day trading can be an attractive alternative to conventional employment for numerous reasons. Professional autonomy, financial freedom and the ability to live life on one's own terms are enticing upsides to many individuals interested in engaging the financial markets for a living.
However, the presence of a few items is 100% non-negotiable when joining the arena of professional day trading. It is well advised that an aspiring trading professional performs his or her due diligence in securing the absolute best components for the job:
- Equipment: Modern technology has opened the marketplaces of the world to the masses. When it comes to the necessary equipment, all that is physically needed to join the market is computing power and internet connectivity.
- Market Access: In order to actively trade a given market or markets, selecting a brokerage service that is able to efficiently facilitate transactions is a must. Brokerage firms come in all shapes and sizes, from discount to full-service. Finding one that is reasonably priced and best positioned to trade the chosen asset class is worth extensive scrutiny.
- Risk Capital: Risk capital is money that is set aside for trading operations only. For the business of day trading, risk capital is the inventory; without it, there is simply no way to conduct business. It is imperative that adequate risk capital is available for trading functions. In order to make a living exclusively from day trading, the amount of risk capital available must be large enough to sustain drawdown, and support positions large enough to produce acceptable returns.
Putting It All Together: Day Trading For A Living
Technically, anyone with the proper equipment, money and brokerage support is able to enter the marketplace. Of course, longevity is not assured. Statistics show that upwards of 90% of all new traders fail, eventually leaving the market altogether. There is absolutely no doubt that active trading is a hyper-competitive job with a large turnover.
While success in the marketplace can be elusive, there are steps that may be taken to lessen the chances of becoming a casualty of the markets:
- Trading Plan: The development and adoption of a comprehensive plan is a crucial part of prosperous trading. A rules-based approach to engaging the financial markets can provide the structure necessary for sustainable profitability. A comprehensive trading plan consists of tenets governing market entry/exit, open position management and money management. A viable trading plan brings opportunity and risk into alignment, increasing the probability of success.
- Performance Assessments: Periodic evaluations of both trader and equipment performance can identify areas in need of improvement. A simple problem can hamper trader performance and compromise the integrity of the trading plan, negatively impacting profitability. Early diagnosis of any performance related issues can keep the trading operation on schedule and financially "in the green."
- Education: The markets are dynamic systems that are capable of changing rapidly. Staying "on the lead lap" is a big part of evolving in concert with the marketplace and not being left behind. A trader is well advised to stay abreast of advancing technology, new strategies and up-to-date market fundamentals.
Given a viable trading plan, regular evaluation and ongoing education, an individual has an opportunity to become a profitable day trader.
Day trading can be a rewarding profession, providing an abundance of personal satisfaction and financial freedom. Given the proper psychology, inputs and methodology, it is possible to achieve success in the marketplace.
Nevertheless, be forewarned. The short-term trading of any market or security as one's sole source of income is an all-consuming undertaking, and not suitable for everyone. The pressure of not having a stable income to fall back on can be overwhelming, as can enduring capital loss or long periods of break-even trading.
- How To Become A Day Trader
- Day Trading Equipment For Beginners
- <strong>What Is Forex Day Trading?</strong>
Any opinions, news, research, analyses, prices, other information, or links to third-party sites are provided as general market commentary and do not constitute investment advice. FXCM will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…