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I want to trade online. How do I go about choosing a broker that is right for me?
The first thing to do is identify your objectives. The needs of a trader depend on several things, including your account size, average length of trade and even your location.
For daytrading and swingtrading a direct access broker is considered by most (myself included) to be a necessity. It is highly recommended you do NOT use a broswer-based broker. My personal favorite trading platform is provided by Terra Nova and is called Real Tick III.
I would like to trade part-time, but I still have another job. Is it possible to trade part time and still be profitable?
Yes. Your learning curve will tend to be longer though. What I would recommend is quickly picking an area of the markets to "specialize" in, whether it be position trading or just daytrading during the time that you do have available intraday. This will allow you to become a professional in one area of the market instead of jumping around where you will be coming up against market participants with more experience and knowledge than you.
What size of account would you recommend to new traders?
Every broker tends to have different requirements for a minimum balance to open the account. I feel that any trader serious about learning to trade successfully though will start with a minimum of 30K. This amount will allow you to take advantage of a setup you like almost regardless of the stock's price and allow you to not be subject to the Pattern Day Trader Rule. It will also allow you to take positions with minimal risk to your overall account, allowing for the mistakes that traders will always run into.
One thing that you must always remember when opening any trading account is that you should do so only with risk capital. As such it should only be a part of your overall portfolio and funds dedicated to a more aggressive market approach. You should not attempt to day trade full or part time if you do not have enough money to cover your basic living expenses and other foreseeable needs for at least 6 months.
How long does it take to learn to trade successfully?
The average time it takes for most of the new traders that I have come in contact with to start breaking even and turn their account around is about 6 months, but every single person is somewhat different and most do not start making a steady living at it for a couple of years. Prior to the time you should expect to "pay your tuition." Like any profession, the more experience you have, the better your performance. Those that start trading and are "instant successes" are merely deferring their tuition and in many cases that interest is very high. Do not be lured in to think that this will be a snap. You must have the drive to learn if you are to succeed.
I would like to eventually become a full time trader. How much can I make trading?
It is impossible to state how any one trader will do. Successful trading is a mixture of innate ability, personality and the drive to succeed. In order to trade profitably you must be able to control your emotions, accept personal responsibility for losses and be willing to take the time to learn from your mistakes. Trading is not easy. Most people do not have what it takes to succeed in this profession. Among those who do succeed, their performance will often fluctuate from year to year and the range in income is wider among professionals than in any other field I can think of. So how much money do I think you can make trading? I do not know. What I do have confidence in is that I can help give you an edge over other traders and those I have taught have said that it was that edge that made all the difference in their own performance as a trader.
What is your opinion on penny stocks?
Not very high. They tend to be easily manipulated and very dangerous to trade. Trading penny stocks is one mistake easily avoided.
How many trades do you take per day?
This varies a great deal depending upon the market and my own interest in trading on any given day. I prefer to trade in the mornings even though I am often placing orders throughout the day. My typical number tends to fall between 3-8 trades per session and will include both stocks and futures positions. I also manage a longer term portfolio which generally has between 10-30 open positions at any given time.
What is Nasdaq Level II?
Nasdaq offers several levels of quote information to its subscribers. Nasdaq Level I data provides the current best bid price and ask prices, along with the trades that occur in each stock.
Nasdaq Level II expands this data to include the individual market maker information for each stock. With Nasdaq Level II, for example, you can see that the market maker, Goldman Sachs (GSCO), is quoting a bid to buy 1000 shares of DELL at 24.76 and is offering to sell 1000 shares of DELL at 26.60. Nasdaq continuously compiles the various bids and offers from all market participants to display the best bid and offer data (Nasdaq Level I data). Perhaps the best bid price (i.e. highest) for Dell Computer is currently from First Boston (FBCO) quoting a bid of 26.35, and the best offer price (i.e. lowest) is Merrill Lynch (MLCO) quoting an ask price of 26.50. In this case, the Nasdaq Level I data will show a best bid/ask quote for Dell Computer of 26.45 bid and 26.50 offered.
I often hear you referring to the NQ and ES. Can you tell me what these are?
I often trade positions in the overall indexes. You can do this by trading tracking stocks such as the QQQQ and SPY, rather than in a specific stock. As stock traders we are often keying in on the indexes and then trying to find the stocks that will outperform the index, however, with the leverage offered by the futures market and the smaller contract sizes offered by the "EMini" futures, taking a position in the index rather than a stock can become quiet attractive for some people.
When I refer to the NQ, I am talking specifically about the NASDAQ 100 EMini futures contract which trades on the Chicago Mercantile Exchange's all electronic (think Island ECN) GLOBEX market. Each EMini futures contract is 1/5th the size of the bigger ones which trades in an open outcry "pit", and is equal to 800 shares of the QQQQ, which is a stock traded on the American Stock Exchange, representing ownership in the NASDAQ 100 index. The EMini NASDAQ futures (NQ) move in 1/4 point increments with each point being worth $10.
When I refer to the ES, I am talking specifically about the SP500 EMini futures contract that also trades on the Chicago Mercantile Exchange's GLOBEX system. Each EMini SP500 contract is 1/5th the size of the big ones traded in the open outcry "pit", and is equal to 500 shares of the SPY, which is a stock traded on the American Stock Exchange, representing ownership in the SP500 index. The EMini SP500 futures (ES) move in .25 point increments. Each point is worth $50.
The YM is the Mini-sized Dow, which is the Dow Jones Industrial Average’s Mini futures contract. It trades on the Chicago Board of Trade. It trades in 1 point increments, each worth $5.
The advantages to a trader looking to the EMini's is numerous. As mentioned above, a trader will have the opportunity to focus on one market, allowing you to become more specialized and also to not miss things that you may by flipping through chart after chart looking for an opportunity in stocks. The leverage available can be an advantage and a disadvantage both, depending on how you use it. The best feature of trading the futures though, in my humble opinion, is the HUGE tax advantage futures traders enjoy over stock traders. If you are trading futures, 60% of your gains are taxed as long term capital gains. For a successful trader this can equal tens, if not hundreds, of thousands of dollars in savings.
Disclosure Statement:
*THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL, YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION.
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