Starting Your Own Stock Day Trading Business

Business Overview:

Starting your own stock day trading business may be the perfect venture for a licensed money manager but you must have a day trading business plan first. As you know if you are in finance, this industry is heavily regulated and without a good plan, you could not only fail as a small business but you could run into legal trouble as well. Day trading is defined as the buying and selling of stocks or other financial instruments within one trading day so that the positions are closed before the market closes each day. Typically, day trading is done by licensed employees of banks and fund companies but with the ease of trading over the Internet, day trading has become more popular with unlicensed home traders. These independent day traders use their own money so they do not have to have any special licenses and are not subject to SEC (Securities and Exchange Commission) regulation. But when you start handling the money of clients, that’s when all the rules kick in. To trade stocks, you must hold a Series 7 license (General Securities Representative) as well as a state license for each state in which your clients live. Additional licenses are required depending on the level of service you plan to offer. If you will be advising your clients on money managing, you will need additional licenses. These licenses are overseen and administered by the FINRA (Financial Industry Regulatory Authority) which works closely with the NASD (National Association of Security Dealers), the administers of the Series 7 exam and regulators of the NASDAQ. Assuming you are fully licensed and skilled at trading stocks, futures, stock options and currencies, starting a business of your own could be one of the best business ideas available to you. You wouldn’t want to take any clients from the firm you currently work for so you will need to market your services to clients who are only interested in day trading and are looking for short-term investments. This is why having a business plan is so important since you will need to fully develop your business model including how many trades they can expect you to perform each day, what your fee structure looks like, how much money you are comfortable dealing with, how you will properly protect yourself in the event of a “bad day” and thus, the loss of clients’ money, etc. You will need to ensure your clients are well aware of the high-risk environment of day trading. Have a policy in place that allows clients to put more money into their accounts and take money out so that it does not interfere with your money management plans any given trading day. Since there is so much regulation with this industry, you may want to hire a professional firm to help you draft your business plan. Be sure the firm is aware of financial industry regulation so you are fully protected and are following all the rules. With the right plan, excellent trading skills and proper communication with your clients, you may be able to turn this part-time online business idea into a full-time business with a long list of happy clients.

A Day in the Life of an Online Day Trading Business Owner:

You will begin your day well before the US markets open (although you can also trade on the exchanges in other countries – FTSE in the UK, Nikkei in Japan, etc.) to see what the futures are and what the “buzz” is on certain companies’ stocks. Depending on how many clients you are trading for that day, you will need to have a general plan for each one each day. This plan will obviously change depending on how certain stocks do throughout the day. You will spend your day watching multiple computer monitors displaying the stocks you (your clients) are invested in. If they go up a certain amount, you will sell. You will also watch other stocks and wait for them to get to a certain low point and you will buy. At the end of the day you will contact your clients to let them know about the day’s activity and see if they want to take money out or put more money into their trading accounts.

About Your Customers:

Your customers will be individuals with money to invest who want the immediate results day trading can provide but perhaps don’t have the confidence or knowledge to day trade themselves.

What You Need to Start:

• Proper financial licenses
• Business plan
• Computer with several monitors
• Accounts with various brokerage companies (E-Trade, Scottrade, etc)
• Extensive bookkeeping software or another method of keeping meticulous records of your activities since you are subject to SEC regulations

The Good:

• For a licensed trader, this is a great opportunity to hone your skills.
• You can offer investors the thrill of day trading.
• If you communicate the risks properly, your clients will keep giving you more money to trade with, thus increasing your profits from the fees they pay you.
• You can run this business from your home office.
• You can operate this business part-time although you will need to work the entire trading day (North America markets: 9 a.m.–4 p.m. ET, Europe: 3 a.m.–11:30 a.m. ET, Asia: 8 p.m.–3 a.m. ET).

The Bad:

• This is a highly risky method of investing. If your clients are not made fully aware of this, they may pull out their money prematurely.
• It is a high stress work environment that requires you to essentially sit at your computer for up to eight hours at a time.

Resources:

• Financial Industry Regulation Authority
• National Association of Stockbrokers
• Bureau of Labor Statistics on Securities, Commodities and Financial Services Sales Agents
• Wikipedia on Day Trading

About The Author

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