How to Trade Stocks for a Living

Learning how to trade stocks for a living takes research, practice, and capital. Most people who decide to go this route are interested in becoming day traders, those who buy and sell securities within the same day. While day trading is different from traditional investing, it follows the same basic principle — buy low and sell high. The difference is that day traders buy and sell in a much shorter time period than long-term investors.

Research How the Stock Market Works

Potential day traders should begin by researching the market and learning how it works. You don’t need to become an expert, but learning basic market fundamentals is vital.

Essentially, the stock market is a huge collection of people buying and selling stocks, pushing the prices up and down. Everyone in the market shares a common goal — they want to make money by purchasing the stocks of companies they expect to do well. While this is a simplistic explanation, understanding this basic premise gives you a solid foundation to build upon.

Learn the Common Terms

Learn the terms used by day traders. Once you have this basic knowledge, your confidence will grow.

  • Securities: Financial assets that have value and are traded
  • Trade: Buying and selling financial assets in the stock market
  • Initial public offering (IPO): The first sale of a corporation’s stock
  • Broker: The intermediary who facilitates trades between buyers and sellers

These four terms are just a few examples, but understanding their meanings will give you a good start.

Best Practices

When you’re researching how to make money from trading stocks, don’t try to learn everything at once. Instead, find a strategy that works and repeat it over and over. Your strategy needs to include a way to enter the market, set up a stop loss, and take profits. Once you’ve determined a strategy, open a demo account, an account funded with fake money, and experiment. Don’t risk real money until you’ve practiced. This doesn’t have to take long.  Many people feel comfortable getting started after practicing for a week or two.

Create Investment Accounts

Once you’ve gained an understanding of how the market works, learned the terms involved, developed a strategy, and practiced, it’s time to open your investment accounts. Numerous brokerage firms facilitate day trading, and you’ll need to pick the one you’re most comfortable with. Keep in mind that by law, day traders in the United States must maintain a balance of $25,000 in their trading account. Due to this, many traders aim to maintain a balance of $30,000 to create a buffer.

Understand Tax Implications

The tax implications associated with day trading aren’t simple, but they’re not as complex as many people assume. The main point traders should understand is that they’ll have to pay short-term capital gain taxes on income generated from day trading. However, hiring a professional tax preparer who understands the nuances of tax law can save you money in the long run.

Trading for a living is a realistic goal, but it takes time and patience to achieve. Potential traders need to learn how the market works, some common terms, and the tax implications surrounding day trading. Once they’ve gained knowledge and confidence, it’s time to open an account and get started.