Do you want to make a living trading stocks?
While it is certainly possible, it's also equal parts challenging and risky.
Trading stocks can be an interesting way to make money and become your own boss.
In this post, I'll explore how to make a living trading stocks, how to get started investing in the stock market, and more. Let's get started!
Ways to Make a Living Trading Stocks
Below are some of the best ways to make a living trading stocks. It's important to understand the risks involved with day trading as it is quite different than what traditional investors are accustomed to. While most traders will manage risk using a variety of tactics, losing money is still possible.
Day Trade to Make Money
While I wouldn't recommend day trading for beginners looking to make some extra money in the stock market, more experienced investors might be able to cash in with their skills.
Successful day trading will take time, wisdom, and some luck.
As a day trader you'll essentially buy and sell stocks throughout the day to (hopefully) make money.
Because of the risk involved with day trading – you'll need to meet some minimum qualifications otherwise your brokerage account will be marked as a pattern day trader and you may not be able to sell your investments until speaking with a representative.
Pattern day traders are marked if you trade four or more times within five business days and your day trading sums are more than 6% of your trading activity in the same 5 day period.
To work as a pattern day trader you'll need to have a minimum of $25,000 in your brokerage account at all times. If your balance goes below this amount, you may not be permitted to trade stocks until you deposit more money into your account.
When it comes to day trading strategies – there are many methods you can use however, many day traders lose money without doing the proper research.
Day traders need to spend serious amounts of time researching the companies they wish to invest in. You cannot simply turn on the television or open up your social media account to find the latest hot stock to make money same day.
Instead, day trading will require you to devote time researching investments, setting up market and limit orders, and having the money to invest but you won't always be successful.
A paper by the University of California shows that many day traders perform below average market returns. Because you cannot predict the future, day traders can have a difficult time trying to time the market and make a profit from it.
If you want to start day trading it's best to start with a small amount of money and understand the risks involved. Day traders need to be realistic about their earnings and cannot expect to become rich overnight.
Related: How to Invest and Make Money Fast
Swing trading is slightly different than day trading in that the holding period is slightly longer. Instead of buying and selling stocks in the same trading day, you'll hold these investments for a few weeks to maximize your returns.
Just like day trading, swing trading can also be risky so you'll want to be comfortable losing some money along the way.
You'll need to keep an eye on the markets at all times if you want to reach success with swing trading.
Related: 23 Best Income Producing Assets
Momentum trading is a trading strategy that ultimately relies on trends and forecasts to make decisions on buying and selling investments.
Sometimes momentum trading can be within one trading day while other times you might hold the stock for longer.
When it comes to momentum trading, you'll want to be careful riding the wave and aim to sell the stock once you've reached your goal. Sometimes the stock can crash after a certain point which can cost you thousands of dollars.
Another method to make money trading stocks is via options trading.
With this method, you're in theory assuming the value of the company will go down.
As a professional trader you can make real money with options trading – but it can be extremely difficult.
Most traders find it hard to make a living with options trading but those who are successful can make enormous amounts of money. Some of the best trades of all time have been options trades.
Related: Investments That Pay You Every Month
Tips to Make Money Trading Stocks
When it comes to working in the stock market and becoming a successful trader, here are a few tips to help you.
Trading stocks for a living can be a fun way to make more money – granted you likely won't see instant success.
One of the best ways to boost your profits is to minimize fees.
For a significant amount of time, brokerages would charge a trading fee for each trade executed. These fees would cut into any small profits you might be making on the trade when you sell. Today, many platforms have gone away from this fee structure which has helped traders execute trades in a more efficient manner.
If you want to trade stocks for a living you need to pick a brokerage account that doesn't have fees. Many brokers don't have them anymore. But it's still important to double check.
There can also be fees when trading on margin, which in short is borrowed money. Because you're borrowing money, this can be extremely risky for many traders. Unless you are financially secure trading with the interest on your margin, I would highly advise against it.
Focus on the Numbers
There's a healthy medium of focusing on the numbers and doing analysis paralysis. You'll want to be knowledgable about your investments and why you decided to invest in them.
Some of the most experienced traders will dedicate serious time to understand the earnings of a company, the leadership team, and many other aspects of the firm before making any investment.
Between technical analysis, viewing past performance, and taking note of market conditions – there are many indicators that can help you make better trades.
Keeping track of your investments and why you made them is a great way to prepare for the future and make wise decisions down the road.
If you find a pattern of poor decisions, try to understand the reasons behind them and aim to avoid them in the future.
Keeping records of your decisions and performance is a great way to improve your earnings as a day trader or other type of trader.
Stay in it for the Long Run
While day trading gets all of the attention, it's best to invest for the long term. Not only is this a historically better investment in terms of your gains, you also won't face the stress that accompanies many day traders.
For example, index funds are a great way to diversify your investments with proper risk management. One trade and you can hold many types of stocks.
When it comes to investment advice, staying in it for the long haul is my top piece to reach success.
Related: How to Make 50k a Month
Don't Be Afraid the Fail
The truth is, both novice investors and professional traders are going to make mistakes and fail at some point in their trading career.
Many new traders might be scared to make mistakes because it can be a quite costly one. But don't let that stop you.
If you want to make a living day trading or get a career in trading – do it!
How to Start Making a Living Trading Stock
Buy low, sell high – it's that easy, right? Unfortunately not always.
If you want to make a living trading stocks your first task is to open a brokerage account. My favorite account is Stash. They offer all of your favorite investments including stock, mutual funds, index funds, ETFs, and much more. There are no trading fees and as a bonus you'll receive $5 for free when you register. What's better than free money to invest??
After you've created your account, it's time to do some research. This step can take anywhere from a few weeks to a few months. You'll want to ensure you have the knowledge about the company to make a wise decision to become profitable.
Next, it's time to execute the trade. There are several types of trades you can make depending on your goals and calculations.
Finally, you wait for your stock to go up or down – depending on the type of trade you made. That's it!
Best Stock Trading Careers
Are you looking for a career path that allows you to get paid to trade stocks? Below are some good options to consider for your day job!
An investment banker is a great way to make money as a trader working for someone else. With this job you'll often work with large companies or institutions to help them manage their money and make wise investments.
There are many investment banking jobs for all interests. For example, working for a private equity fund can be a great way for traders to learn the ins and outs of investing.
Related: Best Assets to Buy in Your 20s
Sell-side traders work for banks with the goal of providing options for banking clients to invest. They will aim to identify the best trades fir their clients to make the most money while managing risk.
Hedge Fund Traders
If you want a career where you can trade stock, workin as a hedge fund trader can be an excellent option. With this career, you'll work with hedge funds to find strong investments by watching markets and searching for trading opportunities.
Final Thoughts on Making a Living Trading Stocks
So, can you make a living trading stocks? In short, yes. But it won't be easy.
Many professional traders have dedicated decades to learnings the strategies, processes, and methods to make money as a stock trader.
Trading is no easy gig as many new traders will find. You'll need to dedicate the time and research to become successful and make a living trading.