Introduction:
One of the most common questions that aspiring stock day traders ask themselves is How do I become a successful stock day trader on a shoestring budget? The truth of the matter is that while financial success isn’t easy, it can be achieved with dedication and some good old-fashioned elbow grease.
Whether you want to get started with day trading because you have an interest in finance or because you’re struggling financially and think day trading will help you meet your money goals, there are certain steps you should take before you dive headfirst into the world of stock trading.
Figure out what is your investing strategy
Your strategy is important because it’s what guides you toward making smart, time-sensitive decisions. You can have all of the right tools, information, and resources and still fail if you don’t know what to do with them. To be consistently profitable as a day trader, your strategy has to be as sharp as possible.
It needs to be so flexible that it works no matter what markets are doing or whether stocks are up or down. If you want some tips for getting your investing strategy in shape, check out our guide here: How To Get Started Investing In Stocks.
Decide where you want to invest (Equity vs. Options vs. Futures)
If you want to become a full-time, professional day trader, it's probably not feasible for you to start as an options or futures investor. There are many different ways for you to invest in stocks, so look into what is right for your goals and your tolerance.
If you just want extra income, but don't want complete investment control over your money (you'll be subject to exchange fees), consider investing in mutual funds or ETFs. Mutual funds pool money from multiple investors and manage that money professionally; they're relatively safe investments.
Determine how much you need for each investment vehicle
Determining how much you need for each investment vehicle can be tricky because expenses vary depending on your comfort level and your broker.
If you’re just getting started, consider setting up an account with Robinhood; it offers free stock trading. After that, plenty of online tools can help you estimate how much money you need for each type of investment.
Consider tax implications
A lot of people want to know how they can start earning money from home and fast. But before you dive into learning strategies for day trading stocks, consider how you will pay taxes on your profits—especially if you don't have another source of income coming in.
Your profit (or loss) is going to reflect your combined federal, state, and local income tax rate, which will probably be higher than the 15% or 20% tax bracket that most workers fall into. If you're making $50,000 per year and trying to trade stocks without accounting for taxes—let's just say that long-term trading is not for you.
Get your trading platform setup with a $0 cost
The best part about starting a new trading account is that you can do it for $0! There are two ways that you can get started trading with little to no money: leverage and promos. Leverage allows you to trade multiple positions at once and gives you instant access to cash in your account.
Promotions give you cash without having to deposit any of your own money (which is what we’re going for since we don’t have any other income). To trade stocks with leverage using real-life money, check out Firstrade. If you want to try it out with demo money first, sign up for free at TD Ameritrade and use their thinkorswim platform for free for 60 days.
Learn everything you can about trading before you start
As you begin to learn how to trade you must get you to get comfortable with paper trading. Paper trading is when you trade using demo money instead of real money. This allows you to experience what it’s like to place orders, enter and exit trades, and see how your positions perform before any of your hard-earned dollars. And don't worry:
To practice paper trading, all you need is an online brokerage account—no actual funds are required (thankfully).
Start practicing with free demo accounts until you are ready to trade with real money
Trading with real money before you are ready can be very grave, so start small with practice or demo accounts. This way, if you do make any mistakes, they won’t cost you as much of your capital. You will also be able to get used to how it feels to trade in an actual account and how using an online trading platform works.
The great thing about practicing first is that you can focus entirely on learning without having too much stress involved. It will give you time to research and ask questions of more experienced traders and make sure that trading is right for you! Most importantly, though, is that once you have had enough practice and feel confident that your knowledge matches up with what real traders go through, then it’s time for you to get started!
Do not overtrade!
Let’s face it, if you start trading with an already tight trading budget, you are going to find that there are some areas where expenses will be unavoidable. For example, stocks have transaction fees associated with them—even when your broker doesn’t charge commissions. The good news is that these fees can typically be minimized by using limit orders and avoiding trade lots (usually 100 or more shares) or high-volume penny stocks.
You should also make sure you consider taxes before making any trades and add these costs into your calculations as well. When thinking about how much you want to trade each month, it might help to think about how many trades you plan on making throughout your day—and how those trades will affect your overall profit margin.
Don’t forget the taxes...or the fees.
If you’re going to be trading regularly, you will want to set up an account with Robinhood or Acorns. These types of accounts are great because they charge no fees for trades and have no minimum balance requirements. If you’re in it for long enough, these accounts can save you quite a bit of money!
Just remember that free means they make their money elsewhere (namely through buying and selling stocks as you buy/sell).
Conclusion
So there you have it, everything that you need to know about becoming a professional, full-time day trader with just about any income level.
Now that you know all of these things, you can really begin your journey in trading and make great success. Don’t be afraid, just go out there and start trading!
Good luck!
