become a day trader? (2010, debt, borrow, buy)

[Nepenthe]

I probably wouldn't consider quitting my job/career to become a day trader. But I work for a brokerage firm (I'm in engineering/project management) and cuts are coming (9% already through January). I do everything I can to make sure I'm not on the list, but things happen, and we recently lost some valuable business partners to the first round.

Working for a brokerage firm means by law you must have all of your directed accounts at that firm, which means I'm subject to the whims of the commissions charged by my firm. I'm also bound by restrictions -- I can use margin and trade options, but I can't buy puts on individual securities, sell naked options, do spreads, or sell short any positions (with index puts and inverse ETFs available it's not so bad). I'm limited to 240 trades/year. I don't want to go into Pattern Day-Trading right now, which is by far my biggest restriction right now.

TexianPatriot posted about Zecco. 10 free trades/month, then $4.50/trade. If I did three round trips/day, my firm would charge me $1008/month, Zecco would charge $522. For options, my firm would charge $27.90 for 10 contracts (round trip), Zecco would charge $19.00. I could use Zecco if I were laid off. Free Online Stock Trading, Discount Options Trading, & Discount Stock Brokerage

I short-term trade now but obviously I can't pay a lot of attention to it at work. Still, it's amazing to earn $200 for ten hours of work and $400 for a few well-timed clicks of the mouse. It gets me to thinking about what I could do if I were able to devote all the market hours to trading.

I have done pretty well over the past few weeks. I could come up with the required $25,000 (for PDT) plus some additional to cover, although I'd be trading with my future rent money if I lost my job. My policy is to NEVER borrow on margin, however. I have no real debt and no wife or kids. I've never done real hardcore day trading, but I know our active trading application inside and out and I used to work as a phone associate handling equity and options trades.

--What do you think -- possible good backup plan? Or horrible idea?
--Any other recommendations beyond Zecco? Experience?
--If I went on unemployment I would NOT abuse it, my intention would be to work to try to secure a job. But current prospects are bleak for this industry. Perhaps an evening job in retail or something to pay the bills and allow me to day trade during the day? My question is, would producing capital gains through day trading legally impact my ability to collect unemployment before I obtained a new job?
--Moral/ethical concerns?

I'm well aware of the risks. But I also know how to protect myself from some of the inherent risk. Consider this: There's a six year 4.95% CD out there from Discover. If you hypothetically compounded the coupon at that same rate it would earn 33.6% in six years. You'd have to contend with inflation risk, call risk, and possible default risk (excepting FDIC). Yesterday, symbol FAS moved up 33.6% in less than an hour. The risks are obvious and substantial but the potential payoff is enormous. Big money out there

Thanks for reading, I welcome your comments!

[Donn2390]

If you are just trying to get rid of all of your money, there are two ways to do it. Become a day trader, of just go to Vegas and get it over with quickly....

[Nepenthe]

Originally Posted by Donn2390

If you are just trying to get rid of all of your money, there are two ways to do it. Become a day trader, of just go to Vegas and get it over with quickly....

Well, giving it all to charity would be even quicker.

So you come down on the "horrible idea" side. But I have been able to profit nicely on 70% of my trades over the past two months, and that is while paying a lot less attention than I could at home and with higher commissions.

Thanks for the comment!

[chet everett]

I am not as pessimistic as some, primarily because I have worked alongside people who work on the trading desks in Chicago. These people are not "super heros" but they have access to MUCH more information than ANY day trader could afford. The other thing that the pros have that a day trader does not is a firm to back them up with Risk Managers whose job is to make sure they do not get too exposed. The firms also have people to make sure their traders are on a level playing field with others -- no body does that for "day traders/little fish", don't kid yourself that the SEC or anyone else is going to care!

I do think that there are a handful of people with the discipline to make a living trading, but if you want the big rewards you are going to need a big pile of capital and if all capital is your own (as a day trader) you have to realize that you are violating the "don't put all your eggs in one basket" rule of ANY investment strategy...

If you are really serious about a career shift, and your engineering background includes any kind of mathematical foundation I would give serious consideration to making an investment in your long term future. There are paths to some very lucrative careers that include a degree/ certificate in Financial Engineering. I know several people that have done this: IIT Stuart | MS Financial Markets If you have the dedication it can be a very lucrative career choice...

[Nepenthe]

Originally Posted by chet everett

If you are really serious about a career shift, and your engineering background includes any kind of mathematical foundation I would give serious consideration to making an investment in your long term future. There are paths to some very lucrative careers that include a degree/ certificate in Financial Engineering. I know several people that have done this: IIT Stuart | MS Financial Markets If you have the dedication it can be a very lucrative career choice...

Interesting idea. I was actually considering going back to grad school earlier this year, but I decided to put off that decision until next year (maybe 2010 considering recent events), but I'll give this a look.

You have good points about the flow of information to those who really move the market compared to the small trader.

I guess that although I always talk about the eye-popping 30% or 300% one day gains, in my mind what I'd really be looking to do is simply approximately replace my income, or supplement my income if I have to work in a lower-paying field (like retail clerk) for a period of time. If that means using $25,000 to net $400/week then that's really what I'm after.

Right now, a long position in DDM at $25K will give the same amount of gross income that my base salary pays in a day if the DOW moves up a mere 30 points. How long does it take to move 30 points? Option strangles are also thriving in this volatility.

I don't know, I guess I'll keep the idea in my back pocket and hopefully it won't even be an issue. Thanks!

[jimmyP]

Actually, if you know what your doing, this volatility has been a day traders dream recently. Lot's of ways to make money. Don't forget ,you can make money shorting as well, doesn't have to go up to make money on a trade.

[LongArm]

Just a few quick thoughts:

1) Yes, most day traders fail...but some don't. I day trade for a living (from home) and I can tell you it's definitely do-able. Success or failure depends on the person doing it, the strategies employed, the effort put into it, etc.

2) Big daily gains aren't necessarily the best way to succeed at day trading, IMHO. I don't even THINK about 30% gains. I go for small, consistent daily gains--which add up to large annual gains.

3) The "informational advantage" of the prop firms is overrated, IMO. But that depends on how one trades too. Myself, most of the info I need is in the price action.

4) Based on what I've read about Zecco, I personally wouldn't consider it for day trading. What you save in commissions may cost you in frustration, lost opportunities, slippage, etc. Then again, my broker (Scottrade) isn't known as a great one for day trading either, but I've been able to make it work just fine.

Good luck with your decision.

[GregW]

IMHO - Day Trading = plague. Both should be avoided.

[CouponJack]

Originally Posted by Nepenthe

Well, giving it all to charity would be even quicker.!

At least you'll get a nice tax deduction w/donations.

Originally Posted by Nepenthe

So you come down on the "horrible idea" side. But I have been able to profit nicely on 70% of my trades over the past two months, and that is while paying a lot less attention than I could at home and with higher commissions.

Thanks for the comment!

99% of day traders lose money in the long run. Can you guarantee you'll do well over the long term? I'm afraid not. Its a losers game for the long run FOR A VAST MAJORITY OF PEOPLE. The only time I would think of doing it would be for pleasure and if I had some funny money to blow (kind of like my online poker account).


If it is such a great idea please provide the laundry list of people who have been successful vs. the # of people who havent.


The only people making a profit consistently are the people who are SELLING the seminars and profiting off clueless people trying to get rich.

[DasNootz]

I guess a lot would come down to your personal scenario. How big is your bankroll? How confident are you in your skills? How much will you have to make per month to survive etc...

Say that your total bank roll to start off is $50k. If it's costing you $500/month in commissions that's 12% per year. You'd have to make that much profit per year to turn a profit, and you'll mostly likely go broke.

Using your scenario of a bankroll of $25k... if you wanted to net $400 per week you'd have to make $26,800 in profit in the first year. That's 107.2% annual profit. If you can do this consistantly, let me know.

Remember that it's a long term average of success that wins, not just a couple week heater.