In 2017, the U.S. accounted for more than half of the global stock market share. Approximately 52 percent of Americans have money in stocks. If you have a passion for numbers and financial analysis, consider working as a stock trader. This can be a rewarding career path for those who are not afraid to take risks.
What Is a Stock Trader?
The global stock market is worth over $80 trillion. If you're ready to quit your nine-to-five job or switch careers, you can make a living trading equity securities. Those who choose this career path are called stock traders. Depending on your goals, you can either work for yourself or on behalf of an investor or company.
Trading for a living may seem exciting, but it comes with its share of challenges. If you lack the skills and knowledge needed to trade stocks, you could end up losing everything you have. It's a high-risk business that requires a deep understanding of the stock market, supply and demand, price patterns and other key aspects.
As an independent stock trader, you will purchase shares in one or more publicly traded companies. The end goal is to make a profit from short-term price fluctuations. You can buy and sell shares through the New York Stock Exchange and other major stock exchanges or in OTC (over-the-counter) markets. In addition to shares, you can trade bonds, pension funds, mutual funds and other financial instruments.
Stock Traders vs. Stock Brokers
Despite their similarities, stock traders and brokers operate differently. Stock traders buy or sell shares on behalf of large investment companies, banks and other businesses and work in different markets, such as Forex (foreign exchange market) or stocks. Some work on their own, trading full time from home.
Stock brokers work for independent companies called brokerages, as well as for investment banks. They're more or less the same as sales representatives. These professionals don't purchase shares for themselves but only arrange for the stock to be traded; their role is to assist clients with investment management.
As an independent stock broker, you'll work on your own. If you have a proven track record of success, customers will inquire about your services. Most brokers also help their clients with financial planning and portfolio management, negotiate the best deals on their behalf and hold seminars on investment topics to lure potential customers. Traders may use brokers to help them make the right decisions when trading stock.
Job Duties and Responsibilities
Trading for a living involves more than just buying and selling stock. Those who work in this industry spend their time researching the market, observing their trades closely, conducting business and quantitative analysis and developing cutting-edge trading systems. They are also responsible for identifying and troubleshooting trade system issues, handling trade corrections and maintaining relationships with key industry stockholders and brokers.
Most traders nowadays conduct transactions electronically. They use a variety of online platforms to buy and sell bonds, equities, foreign exchange and so on. A stock trader who is employed by a bank, for example, may trade on its behalf or on behalf of its clients. They monitor the market trends and performance, analyze data and provide daily trading information to key parties.
Traders usually work for treasury departments of large organizations, investment banks or financial houses. Some are trading full time from home; in this digital era, anyone can start trading independently with minimum investment. A pattern day trader, for instance, is someone who trades at least four times in five business days and maintains minimum equity of $25,000 on any given day — among other requirements. If you don't have this money, you can get started with Forex trading, for as little as $100.
Education Requirements for Aspiring Traders
This may come up as a surprise, but no formal education is required for stock traders and brokers. Most companies, though, prefer to employ traders with a Master of Business Administration (MBA) or a Bachelor in finance or business, as well as a stock broker's license. On-the-job training is often provided by employers.
Stock broker licenses are issued by the Financial Industry Regulatory Authority (FINRA). Aspiring traders and brokers who pass the FINRA’s Series 7 exam and meet licensing requirements are granted the right to work in this industry. Any job that involves the purchase and sale of shares, bonds and other securities requires this license. Various organizations and private schools, including the College for Financial Planning and The American College of Financial Services, provide online courses for traders and other financial services professionals.
If you decide to trade on your own, it's not necessary to have a BA or other certifications. However, since this is a high-risk business that requires a lot of research and analysis, continuing education is a must. You need to familiarize yourself with the most important stock market terms, study the different markets and learn trading strategies.
How Much Can You Earn?
Some of the wealthiest traders in the world have billions of dollars under management. George Soros, for example, has accumulated more than $40 billion in profits since the '70s. David Tepper earned $1.5 billion in 2017 alone. Steve Cohen, Daniel Loeb and Ken Griffin are some of the most notable names in this industry.
As an independent stock trader, your income potential depends on your monthly expenses and starting capital. If you start trading with $5,000, you'll earn less than someone starting with $50,000. Your skills and expertise, as well as your trading strategies, will influence your income potential. Successful traders possess critical thinking skills, decision-making skills and strong communication skills; they also have an analytical mindset and don't let their emotions control their actions.
If you're employed by an American company, expect to earn around $53,386 a year. Experienced traders receive salaries of up $147,000 a year. The risks are lower for those who choose this career path, but their income potential is limited too. Many stock traders work for large investment firms and start their own business later on; this allows them to gain experience and understand the ins and outs of this profession.
Increase Your Chances of Success
Trading for a living isn't as easy as it seems. In fact, 80 percent of day traders give up within two years. This career path requires continuing education as well as specific abilities and skills. Ideally, seek a mentor or work as an intern for investment companies before you start trading full time from home.
Research the different markets and trading strategies so you can choose those that fit you best. Consider your capital, your risk tolerance and your long-term goals. Read about successful traders, enroll in online finance courses and attend webinars. Keep an eye on the stocks you follow and learn everything about them.
Join online trading platforms to practice your skills. Here you'll have access to stock market stimulators, allowing you to try out various trading strategies without the risks. Wall Street Survivor, NinjaTrader and TradeStation are just a few examples. These platforms also provide how-to guides, tutorials, videos and other training materials for aspiring brokers and traders.
