Trading on the various markets is more appealing now than ever, with easily accessible brokers and brokerage platforms to trade on. The potential for earnings is through the roof, and more people are looking to get involved in the trade.
This article looks at the steps required to become a trading professional and how much the average trader can expect to make.
What is a professional trader
A professional trader performs investing in the stock market as a full-time job instead of a hobby or on the side. They work either as individuals, part of a particular brokerage firm or as freelancers. The position affords some flexibility to trade as investors see fit, but the most popular exchanges are open from 9:30 am to 4:00 pm Monday through Friday.
Many traders pursue a degree in finance or business to equip themselves better to deal with stock market conditions. Those trading typically choose a specific type of investment strategy.
Here are two of the most common:
Day trading methods revolve around a careful technical analysis of market conditions from opening bell to close. A day trader carefully watches securities during a single market day, buying and selling as prices move in their favor. It takes patience and quality research to accurately predict how a stock may move on a given day before it even happens.
Those performing day trading may perform short selling or ride the investment wave. Ideally, day traders close out all positions before the market closes for the day.
Swing traders use changing market conditions for their benefit, trading strategies over days or weeks as the market swings in one direction. Knowing when shares are low enough to buy and when they've reached peak height to sell takes skill. Those unable to do so will lose money and struggle to attain profitable results.
How to become a trading professional
The quest to become a professional trader is no walk in the park. There are several important steps to follow before even getting your head in the game.
1) Learn the basics
This may seem like a no-brainer, but trading basics are the key to success. These tools become the foundation of a trader's journey throughout their entire career.
Educational resources from your local bookstore or free resources from the library go a long way toward understanding trading basics. These materials cover how prices move, managing risk, how much capital you need to trade effectively, monitor trading performance, and more.
2) Decide what you want to trade
As you solidify trading basics, you need to think about what most interests you to trade. Below are some of the most common investment products to consider.
Stocks represent a piece of ownership of a particular corporation. By selling a small fraction of their business, these companies can use the money to fund projects or grow operations. As a stock owner, also known as a shareholder, a trader is entitled to profit based on the amount of ownership.
Once listed on a public stock exchange, these shares can be bought or sold at different prices to make money. Some traders will hold onto this equity indefinitely if they feel the company will continue to grow.
Penny stocks include all shares on the market that sell for $5 or less. Being so low-priced, these securities often see a lot of price movement in a short period of time. Day traders like to capitalize on these changes to buy, sell, and become profitable.
These assets see a lot of volatility and are often hard to predict. There's a lot of risk involved that an amateur trader may find hard to follow.
Options give a trader the opportunity to buy or sell a stock (or other assets) if it reaches a predetermined price by a certain day. Trades often involve a bundle of assets and present the possibility of getting more for a lower price. There's a higher level of understanding required here, as options use a unique slew of terms such as put, call, strike, and options greeks.
They trade on the stock market and usually have a smaller initial investment. Options strategies allow more flexibility with investing but come with significantly more risk than a stock. Traders typically need to rely on brokers for exchanges that can charge additional fees.
Futures function similarly to options, with an obligation to buy or sell an asset at a fixed price on a specific date. The main difference from options is that a futures contract is binding. Once the set date arrives, the buyer and seller must perform the trade as agreed upon in the contract, despite any gains or losses either side may incur.
Exchange-traded funds (ETFs) contain a series of assets (usually stocks and bonds) that follow an underlying index. Indexes (like the S&P 500) are designed to see growth over time, generating slow but profitable gains.
Some ETFs follow a specific market sector, such as energy or retail. They also offer a way to access high-priced assets such as Amazon or Google without buying an actual share.
Forex trading works through the exchange of currency. One trade involves the simultaneous selling of one currency and the purchase of another. The hope for traders is to benefit from monies that increase in value more than the currency they originally had.
3) Develop a trading strategy and technique
It's vital to develop trading strategies that generate profits in whatever markets you choose to invest in. Trading techniques will vary from person to person, but it can be beneficial to find a professional trader and learn from their past performance. Keep in mind that many professional traders share their proven strategies through books or websites.
In any case, studying charts and locating patterns will go a long way toward developing strategies that work. If you're working on your own, expect the process to take significantly longer.
Be sure to establish trading rules to follow, no matter the circumstance. This especially holds true for money management rules, where an amateur trader may slip up and let a single trade devastate their capital.
4) Choose a trusted broker or brokerage platform
Brokers and trading platforms offer a link between a trader and stock markets. Acting as sales agents, brokers negotiate trades between two parties across various markets. On the other hand, trading platforms allow traders to perform trades directly on a website.
Insights from brokers can benefit a new professional trader looking to understand how the system works. By watching what a broker does, it's possible to develop trading strategies to use in the future.
Trading platforms open the door to the world of investing but may or may not offer guidance or instruction. No matter which you choose, it's essential to use reputable trading websites or the right broker because they are not all created the same.
5) Gain experience as a trader
The best way to learn trading systems and market tendencies as a professional trader is to dive into one of the markets. There's no perfect method to performing trades, and there's no requirement to win every one or have an excellent record. Instead, the goal is to develop working strategies that bring in consistent overall gains.
If the water seems cold, start with paper trading through a demo account. Paper trading allows traders to test out what they've learned without running the risk of losing any actual money. When you're ready, start trading on the real market.
6) Keep a trading journal
Any professional trader should keep a detailed trading journal with a list of every trade and outcome. Information should include the trade setup, market, type of asset, and whether the share price is expected to rise or fall. Similarly, record the price at buy-in and the amount paid at the exit of the trade. Make a risk assessment and the amount you'd feel comfortable losing.
7) Review and analyze your trades
As your list of trades grows, look for patterns that lead to success and failure. Remove bad habits from your trading strategy and incorporate things working in other areas.
8) Consider taking advanced courses or getting a degree
There are no requirements to become a professional trader, especially when trading with your own money. However, if you want to pursue working for a firm, you may want to bolster your credentials with advanced courses or a degree.
If you have the means to do so, completing a degree from a university will help immensely with future results. Finance degrees offer a ton of factual information about trading strategy and accounting. Economics majors explain currency and fluctuations in business over time. Even degrees in math or engineering teach analytical skills that can boil down to profit.
Working as a trading professional
How much does a trading professional make?
At present, salaries for professional traders range anywhere from $16,000 to $148,000 across the United States. The average salary lands at $81,000 per year, with most traders making between $60,750 and $101,250, depending on experience and skill. There's also an opportunity for commission for a successful trader of up to $25,000 per year.
Job outlook for professional traders
Anyone wishing to become a professional trader is jumping in at the right time. After a decline in demand over the last decade, the industry is expected to grow by 4% to 6% over the next ten years.
While every state has a trading presence, the stock trader industry is most heavily concentrated in New York, Texas, and California. Those looking for a trading career may still face fierce competition. It's also possible to pursue trading success as an individual trader from anywhere in the country.
Becoming a professional trader seems straightforward at a glance, but a lot goes into actually being successful in the stock market. There's a significant amount of knowledge required to understand the basics, identify a market to trade in, and develop a working strategy to bring in some income.
That being said, the markets are an unforgiving place. There will be mistakes along the way, and not every trade will lead to a win. Anyone willing to take the time to learn the process can find success in the investment world.