money online

Trading: how to become a stock market trader in 2023?

April 28, 2023

how to become a stock market trader in 2023?

a Traderis what? What does its activity consist of? What characteristics distinguish him from the investor? How to become a trader? Our instructions for getting started in trading and with what budget? From the choice of a stock market broker to the development of a trading plan, including the use of stock market tools, Café de la Bourse goes back over the fundamentals and presents its advice to you to become a better stock market trader.

Discover the pitfalls to avoid, our profile of the best traders, and our selection of trading training for anyone wishing to become a stock market trader.

Also find in this file our broker comparison, our video 10 tips for starting online trading, as well as our ebook 81 tips for investing in the stock market.

Trader and investor: what are the differences between these market players?

You might be wondering what is a trader. What is trading? And above all, what are the differences between trading and investing? A trader is a person who buys and sells financial products on stock markets. Trade is to position oneself on financial assets to gain capital at the time of resale, unlike a financial analyst who studies companies and monitors macroeconomic news.

In the imagination of many people, the trader is distinguished from the investor by the duration of his positions. Believing that investors are generally positioned for the long term and that traders favor short-term gains. While it is true that some traders only hold their positions for a few seconds, a trader can also hold a position for several months. The real difference between a trader and an investor lies in the objective that motivates them to intervene in the financial markets. While the objective of an investor is to grow his capital through accumulation, the trader is a trader who seeks to resell what he has bought at a higher price.

There are also robot traders that allow you to practice algorithmic trading. This is systematic trading (buy and sell orders are based on algorithms) as opposed to discretionary trading (buy and sell orders are based on the decision of the trader executing the order).

Automated trading can concern the individual investor who will then invest via a robot trader. But it is above all the result of financial institutions (banks, management companies, and hedge funds) which practice it on a large scale: this is called high-frequency trading. This form of trading allows profits to be made through millions of automated microtransactions.

Salaried trader and independent trader: two statuses for an almost identical activity

Trader, is it a job? Yes of course! But be aware that there are two types of traders: the salaried trader and the independent trader.

The salaried trader is a market operator whose salary is fixed, and who in some cases can receive a bonus, but depending on the goodwill of his hierarchy. While the myth leads us to imagine a trader working in a trading room within a bank or a hedge fund, many traders work in groups like Danone or TotalEnergie. The salaried trader therefore does not generally have the task of speculating on the markets, but more often of managing and trying to neutralize the market risks (exchange risk for example) to which the company that employs them is exposed. Bank traders are in most cases operators whose role is to enter the buying and selling transactions of bank customers.

The independent trader, who trades for his own account (he is often called a proprietary trader), works for himself and his income corresponds to his earnings. He does not receive a salary since he is self-employed.

There are therefore several trader statuses that cover very different realities.

In this article, we will focus on presenting the activity of own account trading and detailing the best practices to put in place when you want to become an independent trader.

You may be wondering who can trade on their behalf. In theory, anyone can become a home trader. You will still need to learn about trading and devote a large part of your time to it. However, it is possible to be a self-taught trader and earn income from it.

You do not want to go that far and want to keep another professional activity but you are wondering how to trade when you are working. Itis more complicated but quite possible too. It will only require more organization and will partly determine your trading style and the assets traded. It will be easier to trade Forex or cryptos in the evening than scalping stocks in the middle of the morning if you have a busy job.

According to a 2021 study carried out by “Investment Trends”, there would be nearly 38,000 individual traders in France. The traders counted in this study are traders who have actively traded on the over-the-counter markets with leveraged products. However, we can assume that the arrival of cryptocurrency trading has greatly increased this figure.

1.2 million online traders in France are engaged in the stock market and commodity trading, including active investors.

However, it is very often a complementary activity or a hobby. Few independent traders make a living from trading. There are no more than a few hundred in France, according to a survey by Les Echos of retail traders in France.

How much does an independent trader earn who manages to live off his trading income?

The amount varies greatly depending on the amount of capital allocated to trading. Nevertheless, we can say that with a capital of 100,000 euros, it is not impossible to earn 3,000 to 5,000 euros per month when you are very efficient. With 10,000 euros of investment, and using a little more leverage (and therefore more risk), the income will be more of the order of 500 to 1,000 euros per month if the performance is there. However, this can be enough to build up a nest egg by keeping your main activity, in order to then have sufficient capital to devote yourself completely to your activity as an independent trader.

How to start trading?

To properly start trading, you have to take the time to go step by step. Above all, do not try to skip the stages, even if the path prior to the passage of the first trade may seem very long.

The first thing to do is to determine the time and resources (material and financial) that you will devote to this new activity. Based on the time you can devote to it, it will be possible to determine which trading styles are the most suitable for your personal situation.

A trader who can devote 10 hours a day to his trading will have multiple possibilities. He can choose between scalping, day trading, swing trading, carry trade, news trading, arbitrage, etc. On the other hand, a trader, who can only devote to his trading 2 hours a day will have a more limited choice (swing trading and carry trade for example).

Depending on the resources you can devote to trading, certain trading strategies have to beexcluded. For example, arbitrage or algorithmic trading will require significant computing resources and a solid Internet infrastructure.

Determine if you are able to manage significant stress before scalping, as it may be necessary to avoid it.

Finally, you must also take into account your tastes and desires since success in trading will require a lot of work and effort. Passion will be the engine that will allow you to overcome the difficulties that you will have to face as a trader.

Then, you will have to choose the market and the asset on which you will focus your efforts (currencies, stocks, indices, bonds, commodities, etc.).

Take the time to train yourself to become a successful trader by reading books, following webinars and conferences, or taking a training course.

Be aware that it takes several years of study to become a trader in a bank or in a hedge fund. Devoting one or two years to your learning period will not be too much.

Once you are ready to start trading, know that during your first few months of trading… you will still be in the learning phase. It will therefore be necessary to start slowly with moderate risk-taking.

Trading: what budget for trading on the stock market in 2023?

Reducing trading to a more rational activity helps traders adopt good reflexes.

The proper functioning of a shop involves mandatory expenses such as the payment of rent, charges, salary(ies), for the purchase of stocks, etc.

For a trader, there are also essential expenses to carry out this activity correctly. These can be subscriptions to news feeds, analysis services, stock media, etc.
It can also be the purchase of hardware and software… or even training to keep your knowledge up to date.

The budget for trading is therefore very variable depending on the trading strategy.

We will take the case of a “Day Trader” as a reference, and estimate the budget for one year of trading:

Hardware
Believing that it is necessary to renew the computer equipment every 3 years or so. The budget is €800 to €1,000 per year, i.e. €2,500 to €3,000 to renew the computer equipment (PC, screens, etc.)

Miscellaneous subscription (flow, analysis, media)
1,000 to 1,500€ per year.

Training
€2,000 to €3,000 per year.

Software
€1,000 to €2,000 per year.

The budget for a year of trading will therefore be around €5,000 to €7,000, or €400 to €600 per month. Scalping or algorithmic trading strategies can reduce costs.

How to trade on the financial markets?

Do you want to trade on your own account and want to know more about trading on the financial markets?

Be up-to-date on 5 essential trading themes: broker, trading styles, assets, timing, and solutions to secure positions.

Choose your stock broker, the financial intermediary that allows you to trade

The broker is the indispensable partner of the trader. A financial intermediary is essential for a trader’s ability to buy/sell assets.

Trader and broker or trader and broker are not opposed. These are two professions that cannot work without each other.

Broker provides a trading platform, tools, software, and educational materials to help traders succeed.

“Who to trade with? Which broker to choose when you want to become a proprietary trader? are the first questions to ask themselves for anyone who wants to exercise the activity of an independent trader.

Finally, while picking your broker, you should also consider brokerage rates and costs. Compare transaction costs and the size of the spread between purchase and sale prices, if remunerated.