There are a lot of misconceptions about online trading especially in depicting the real job of a pro trader. This time we will show what it takes to become a professional trader, what are the different paths you can experiment with.
What type of trader you want to be?
First, let's make it clear what the trader is. Trader as a category, is so broad, that it is almost meaningless. Basically, you can differentiate two types of trader: retail trader and institutional trader.
Before we jump in, let's see some example of professional traders:
Describing the group of retail traders is like analyzing the animals of a zoo. But in the end, there are only two types of retail traders. The ones that get fed up with losing, and the ones that carry on and eventually become successful. The bright side of the story is that from being successful, you can build your own brand and influence others like Tim Sykes (later on him). Also, retail traders can earn money from social trading - our eToro review will introduce you to this topic - or from collecting subscribers to webinars and special mentoring.
Institutional trader as a category refers to the employee executing trades at the big investment bank, brokerage firm, or other companies. You will get fix salary and hopefully a hefty bonus at the end of the year.
However, this job requires that you can work under huge pressure and take the risk. You will risk your firm's money. But guess what happens if you don't get the market pulse for a couple of weeks or simply just lay back for a while until the next trading opportunity arrives? You are fired.
This handy table highlights the pros and cons of the retail and institutional traders.
+ Freedom of applying own trading strategy
+ Alternative income
+ Can trade any market
- Risk own capital
- Unpredictable income
- High rate of failure
|Institutional (market maker)||
+ Fix salary plus bonus
+ Working with experienced traders
+ Support of analyst department
- Restricted to filling out orders
- High competition, difficult to get in
- Risk of fat finger deals
Seeing these major differences between institutional and retail trading you might ask rightfully? Ok, which one should I be? Looking a bit deeper may help you, so let's go ahead.
During my own trading career, I started as a retail trader and failed a couple of times. I didn't give up and finally, I ended up on the institutional side being able to invest other people's money under regulated circumstances. As you can see the two categories are not excluding each other, so don’t think in an either-or way.
How to start trading?
Regardless of you want to become a retail or institutional trader, there is a path you have to go through. The first and one of the most important step is learning the basics. After you gained some knowledge, you have to test yourself in real. The last and probably not the easiest step is to trade with reasonable money.
Learn the basics
Here is some everyday trader lingo, let’s test how much you get it.
The risks surrounding the euro area growth outlook are considered to be broadly balanced. On the one hand, the current positive cyclical momentum increases the chances of a stronger than expected economic upswing. On the other hand, downside risks relating to predominantly global factors continue to exist. - Mario Draghi, ECB Press Conference
The euro is softening, and the RSI and MACDs warned of more downside risk ahead of next week's FOMC meeting. The euro has slipped below its 20-day moving average (~$1.1190) for the first time since April 18. It has retraced more than 61.8% of the last leg up that began at the end of May from $1.1110. That retracement objective was $1.1180. A break of the $1.1100 area could quickly see $1.1050.- Seekingalpha.com
Both texts sounded Chinese? Time to learn the basics!
Every trader can reach temporary success but being profitable in the long run requires a lot of knowledge and experience. The good news is that you can quickly collect the basics from free educational sites and the brokers' educational sites.
My top picks for free educational sites:
My top picks for broker's educational sites:
Test yourself in real with demo and real account
Paper trading aka demo practice is a must, should be an intense period of learning. Generally, I recommend two things to do.
Be foolish: trade like a real gambler, forget about money management rules, stop-loss orders, position sizing, etc. You will see how easy and quick you can lose money.
Be serious: practice with the amount that you will deposit to your real account. Forget the $100.000 sum if you will only deposit $1000 to your live account.
Besides the demo account, trading on a real account is also very important. You will behave differently when you trade with your real money and in real nature. During your trades, there are some points you should take into account: stay informed, create your strategy, and analyze your performance.
Many people ask how long can it take until you become a pro? I can only share the same wisdom with you that I have heard on professional trader Birger Schafermeier' seminar. He cited Malcolm Gladwell’s famous 10.000 hours observation on achieving mastery in different activities. Now let's count. If you have full devotion and trade forty hours a week, it will bring you to pro level in 250 weeks, theoretically. That's almost five years. The point is that even after several years of fighting with the markets there are ways of stepping up on the ladder.
Trade with reasonable money
There is one more inescapable element of becoming a pro trader. And yes, it is money. We all know the "how to make a million, start with a billion anecdote". Well, while millions are not indispensably needed, certainly pocket money won’t break the ground.
There is a lot of retail trader replacing the needed capital with leverage and thus trade continuously under extreme risk. The end result? A good old margin call from the broker, or falling into apathy from not being able to progress.
So what can a sharp-witted, talented chap do if he has no chance to risk at least $50-100k as trading capital? Our hero can use other’s capital. As mentioned earlier prop trading firms are risking their owner’s money and basically they let traders, who are full-time employees, to chase the markets and earn the profit using short-term strategies, applying day trading strategies.
We at Brokerchooser love to find treasure and we don’t keep it secret. Without further ado here is a list of prop trading firms that will definitely propel a trading career.
Finding open positions won’t be difficult but getting in is challenging. Usually, excellent numerical and analytical skills are required and a degree in Mathematics, Engineering or Finance is not a disadvantage either.
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Choose the right broker
You have just read that one step to becoming a pro is getting experience in real circumstances. Ok, but at which broker you can do that?
Among the reviewed brokers, we have picked up these three brokers: If you don't have a broker or would like to find a better one, have a look at Brokerchooser’s top 3 selection for novice traders
|Broker||Description||Accepts clients from...|
|Interactive Brokers||US discount broker||Globally|
|NinjaTrader||Global platform provider focusing on futures trading||Globally|
|Saxo Bank||Danish investment bank||Globally|
Let's investigate them one by one.
|Summary||Interactive Brokers is a US discount broker. It is listed on a stock exchange and regulated by several authorities, including top-tier ones like the FCA and the SEC.|
|Recommended for||Traders looking for low fees and a professional trading environment|
|Fees score||4.0 stars|
|Summary||NinjaTrader is a US-based software company, which has an excellent desktop application for advanced users, particularly futures traders. NinjaTrader is an NFA-registered company and introducing broker of brokers like Philip Capital and Dorman Trading.|
|Recommended for||Active traders focusing on futures|
|Fees score||4.2 stars|
|Summary||Saxo Bank is a Danish investment bank. It is regulated by more than 10 financial authorities, including the top-tier UK FCA.|
|Recommended for||Investors and traders looking for a great trading platform and solid research|
|Fees score||3.0 stars|
We hope you were able to choose the best broker for starting your trading experience. If you want to dig deeper into topic, read our best brokers for beginners article.
Summary on how to become a trader
Learn the theory
Trading stocks, futures, options and other derivatives are not for dummies. You need to understand the fundamentals and technicals in order to start building a trading strategy.
Get a lot of experience
Focus not only on quantity but quality. There is no point in burning one micro account after the other. This is the stage where most of the retail traders give up, as they don't apply basic risk management rules. Also, trade with an online broker that will assist you with quality research and further advanced education. Feel free to use our broker comparison table.
Trade a reasonable amount
Get serious with trading on a well-financed account. If you are a whiz kid, you can turn your $5,000 into millions in a couple of years. If you're not a genius you can still be successful at prop trading firms or if you have some great PR and self-marketing skills you can build your own brand and earn extra income from educating others using your proven track record.
Read on to take the next step in your trading career
- Study our detailed broker comparison table
- Check the best CFD brokers
- Interested in what an online broker can offer? Check out our Saxo Bank review
If you are still in question about which broker to choose, we compiled a quick summary here to help you:
Interactive Brokers is recommended for both active traders and long-term investors. It provides a wide range of asset classes and the pricing is really competitive. However, the desktop trading platform and account opening is complicated.
NinjaTrader is a great choice for active traders focusing on futures. We liked the low futures fees and the well-developed trading platform. On the other hand, it has high withdrawal fees and web/mobile trading platforms are missing.
Saxo Bank provides extremely great trading platforms and research tools. On the other hand, the trading fees are quite high.