How to Become a Stock Trader
Do you love the thrill of watching the stock market and making educated guesses about which direction certain stocks will go? If so, then a career as a stock trader may be perfect for you. There are a variety of different types of stock traders, and the type you decide to pursue can depend on how comfortable you are with risk and how much time you plan to put into trading. Learn more about what a stock trader does and how to become one if you’re a beginner.
- A stock trader is someone who buys and sells stocks on the market to profit from the small fluctuations in price.
- There are no formal educational requirements for stock traders, although most employers prefer candidates who have at least a bachelor’s degree in finance, economics, or another closely related field.
- Aspiring stock traders should have a passion for the financial markets and spend time learning all they can about them, as well as monitor the news for events that could impact market prices.
What Is a Stock Trader?
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Stock traders are professionals who earn income buying and selling stocks to take advantage of the small price fluctuations. Short-term traders have a goal of earning profits by holding stocks for minutes, hours, days, or a month, as opposed to investors who buy and hold stocks for years or decades. Traders can be broken down into several different types:
- Day traders: These are traders who buy a stock and close out the position on the same day. They may even make multiple trades per day. The goal is to profit by the small changes in pricing. Day traders may hold on to a stock for only a few seconds before selling.
- Momentum trader: A momentum trader takes a short or long position on a particular stock and then focuses on the acceleration of its price or the company earnings or revenue.
- Buy and hold trader: This is a common approach to trading. With this approach, the trader purchases stock in a company that’s strong, rather than one that’s trending. They may hold the stock through an entire recession believing that the shares will increase in value on the other side over the event.
What Does a Stock Trader Do?
A stock trader is responsible for closely monitoring the stock exchanges and managing investment accounts. They are responsible for analyzing short-term trends of the market, evaluating the risks of securities, and letting relevant departments know about recent trends and the value of the different stocks. Some of their primary responsibilities include:
- Buying and selling stock on the market on behalf of a company.
- Analyzing trading algorithms.
- Staying on top of changes in the market and current events that could impact market prices.
- Implementing their in-depth knowledge of the market and trading strategies.
- Recording and reporting the profits and losses for each day.
- Monitoring portfolios.
- Helping the company attract clients by maintaining and improving upon its marketing materials.
Stock Traders Versus Stockbrokers
T here are a lot of similarities between stockbrokers and stock traders. However, the two roles operate differently. A stock trader works on behalf of an investment company, bank, or another type of business trading stocks. Some stock traders may work independently from their own homes. Stockbrokers, on the other hand, work for brokerages. They act as more of a sales representative and help clients with managing their investments. They don’t make the actual stock purchases themselves, but instead only arrange for their clients’ trades.
How to Become a Stock Trader
Love the idea of trading stocks for a living? You should know that there are no formal educational requirements for this career. That said, most employers prefer some amount of formal education, such as a bachelor’s degree in business, math, banking, economics, or finance, and sometimes even a Master of Business Administration. Number crunching, business, and finance are an important part of this job, so it’s important to have a strong grasp on the basic concepts.
An advanced degree, like an MBA, gives aspiring stock traders the opportunity to learn about more advanced financial concepts, risk management, and fixed income instruments. Regardless of the educational route you pursue, though, it’s important to learn as much as you can about the financial markets. Read The Wall Street Journal and other financial publications to stay up to date on the latest trends.
Most companies that hire stock traders will have the new hires go through their own proprietary training program to teach them the details they need to know to be successful at trading. College students who are pursuing a career as stock traders should start by pursuing internships at brokerage firms. This will give them the hands-on experience they need to be more competitive for stock trader openings.
Exams and Licensing
Unless you plan to only trade for yourself, which is an option, you will be required to obtain a Financial Industry Regulatory Authority license. To do this, you will be required to take the FINRA tests. To perform the duties of a stock trader, you are required to pass the Securities Trader Representation Examination with a minimum score of 70%. The exam is commonly referred to as the Series 57 and consists of 50 questions that cover trade reporting, trading activity, maintaining books and records, and clearance and settlement.
How to Become a Stock Trader If You’re a Beginner
If you’re just getting into investing and want to learn how to be a stock trader, here are a few suggestions for how you can get started:
There are a large number of books available today that offer a wealth of information. This is a low-cost way to learn about trading stocks. These books can cover everything from the basics to advanced trading strategies.
Find a Mentor
Find someone you know who has a fundamental understanding of the stock market. They can offer you guidance, make suggestions for resources, and offer moral support for days that the market is tough. The mentor could be a friend, professor, co-worker, or anyone else who is knowledgeable about the market.
Study Great Investors
Warren Buffet, Peter Lynch, Benjamin Graham, Paul Tutor Jones, and others all can offer a wealth of information about the stock market. They can also offer perspective and inspiration as you’re just getting started.
Gain Trading Experience
While practice doesn’t make perfect in the world of trading stocks, it does make improvement. Professional traders know they aren’t going to win with every trade. However, they understand that by sticking to a consistent strategy, they can win more often than they lose and earn a consistent profit.
Start practicing by trading with fake money rather than real dollars. A lot of trading platforms have the ability for you to use paper trading or trading simulators. This makes it possible for you to try out new trading strategies without worrying about losing money as you test and learn.
Explore Seminars and Online Courses
S eminars can offer valuable insight into specific types of investments as well as into the overall market. A seminar often will focus on one aspect of the market, and the speaker will talk about strategies they have used to find success. Many seminars are often held for free, making it easy for attendees to access valuable information offered by the different speakers. You can also find a number of paid courses and seminars as well if you don’t mind making an investment.
As you gain more experience and learn more advanced strategies and tactics, you’ll rapidly improve as a stock trader. You may also notice, as you gain experience, that strategies you once used successfully no longer work. In this way, stock traders are always learning and improving based on their experience. Successful stock traders recognize that they must adapt to changes in the market. Yet, every change creates an opportunity to develop and execute a new, potentially more effective strategy.