Stock trading can be one of the best businesses in the US. Possibly no other profession offers you the freedom that a career in stock trading can offer.
Recent advancements in technology like Stock API have made it possible for anyone with an active internet connection and a smartphone to trade in the markets.
However, to become a successful trader in the USA, you need to understand the top-5 primary requirements.
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Would You Like To Be A Retail Trader Or An Institutional Trader?
The primary difference between a retail trader and an institutional trader is that while a retail trader works only for himself or herself, an institutional trader works as a fund manager in institutions like a pension fund, an insurance company, mutual fund house, or stockbroking firm.
As an institutional trader, you can get more benefits than retail traders. The benefits may include access to a broader range of securities, IPOs, Forwards, and Swaps. Sometimes, an institutional trader may get better brokerage rates than retail traders, and their orders may get executed faster than orders placed by retail traders.
As institutional traders typically trade with massive amounts, their buying or selling of a stock can often change the stock’s direction.
Every institutional trader was once a retail trader. Hence, if you feel you can ace in predicting a stock’s direction, you can as well establish an investment firm of your own and become an institutional trader. Else, you may also carve your trading career by joining an institution that offers investment advice.
Hence, nearly anyone can become a retail trader; but to become an institutional trader, you need expertise and some formal qualification.
The 5 Primary Requirements To Be A Trader In The US
1. Have The Capital Ready
To trade stocks in the US, you have to fulfill minimum balance criteria to place trades. Usually, most brokers require you to keep a minimum balance between US$25,000 and 30,000 to work as a day trader.
On days when your trading account balance falls below $25,000, you should replenish the amount as early as possible to continue receiving day trader benefits.
As a trader, you should try not to risk more than 1% of your capital. Hence, if you buy a stock, the price of which is $100, you should risk no more than $1 on the trade.
In trading, you will never get the same kind of profits every day, and there will be days when you may lose a trade. Having a proper stop-loss can help you preserve your much-needed capital and stay alive in the market.
2. You May Need A Trader License
If you work as a self-employed trader who buys and sells stocks on their own, you do not need a license. However, you still need to maintain an account with a stockbroker who will be the mediator between you and the stock exchange.
Working as a self-employed trader has its advantages. You can start with low capital. You do not need to explain your losses to anyone, and you may trade whenever you wish to.
However, as a self-employed or retail trader, your trading capital will be limited, and so will be your profit potential. In contrast, when you work as an institutional trader, you have massive funds to employ in the markets and hope to churn higher profits for your employer and your clients. Moreover, if you can show a healthy track record of accurate predictions, you can win clients’ trust and earn even more money.
To become an institutional trader, you have to clear the Series 7 test and register as a General Securities Registered Representative with Financial Industry Regulatory Authority. If you plan to trade options or government bonds, you may need some other securities licenses.
3. Work At A Brokerage Firm
You may skip this segment if you want to remain as a self-employed trader. But, if you wish to make it big in the world of institutional trading, reading this section is an absolute must.
To set off to a good start, you should apply for a trading job with an employer. It is wise to know that not everyone can apply for Series 7. Your application has to be endorsed by a FINRA-registered financial services company.
You may apply for the job as a trader if you have prior knowledge about trading software and processes. Once you demonstrate the ability to execute trades accurately, the employer will most likely sponsor you for the Series 7 test.
On a positive note, if your employer gets impressed with your trading skills, they may offer you a free training program to excel in the test.
4. Craft A Unique Trading Strategy
In the stock markets, people enter with a dream to succeed. However, not everybody can continue their winning streak uninterrupted; that is a privilege reserved for a chosen few.
To beat rejection and dejection, the best traders learn and test various trading strategies like scalping, momentum trading, market-neutral trading, contrarian investing, range trading, price action trading, rebate trading, and news-based trading. Of late, Algorithmic trading has been creating the right buzz and has emerged as the top choice for institutional traders.
Hence, before entering the trading world, you should test various strategies on paper and see which one works the best for you. A successful trader never minds losing a few trades to strike gold in one trade.
To survive in the markets, you may also have to shuffle between various strategies and craft a unique, market-agnostic strategy that delivers results even in the harshest market conditions.
5. Cultivate Soft Skills
Even after getting a degree in business/finance from a top institute, some traders fail to prove their worth in the stock market.
To earn profits, you must have the right mindset. Here are a few soft skills that can help you strike gold:
- Aptitude – A trader needs to work with an extensive set of data, which can be stressful. You need strong analytical skills and mathematical abilities to sift through the data and find out a pattern.
- Communication skills – As a trader, you have to communicate with senior traders or clients. Having excellent communication skills is a pre-requisite.
- Patience – An experienced trader knows how critical it is to wait until stock arrives at the best-buying or optimal-selling zone before placing a trade.
- Controlling emotions – The biggest block between profit and loss is the trader’s emotion. As a trader, you need to devise strategies and stick to them. Deviating from the chosen track or letting emotions control your decisions can prove fatal.
The art of trading is continually evolving. With a free trading account, you can now explore stocks, futures, options, bonds, ETFs, etc., the way you want. By knowing the requirements, you can stay a step ahead and succeed as a trader.