The Truth About Day Trading as a Profession: Institutional vs Independent Traders

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TLDR; It's highly unlikely!

• Day trading involves opening and closing your market positions within a single trading day, aiming to profit from intraday price changes. (Of course, you can always leave trades open for longer depending on the strategy, but the principle is the same - these are all very short-term trades).
• Day trading requires a time commitment, a wealth of knowledge, and sizeable starting capital. The truth about day trading is that consistently profiting as an independent trader is exceedingly difficult to achieve. Very few are able to do it successfully outside of large financial institutions.
• There are many different techniques and strategies that day traders use, each with their fair share of critics (but the main criticism is that most won’t work consistently for anyone, far less an amateur trader).

Often touted as a get-rich-quick scheme, day trading may be on a lot of new investors’ minds. However, the reality is that day traders face an enormous amount of risk to reap any rewards, and most financial industry professionals don’t believe that the rewards justify the level of risk. Most compare day trading to gambling!

Can Day Trading Be a Profession?

While some people may do day trading on the side, or when in between jobs, there are some traders who do day trading as a career! There are two types: institutional traders (paid occupation) and independent day traders (self-employed).

Institutional traders are hired by financial institutions to oversee accounts such as unit trusts and funds or the proprietary funds of the institution itself (the fabled "prop book"). Some institutional traders may practice day trading, but that depends on the objectives of the fund that they are assigned to. These traders typically have access to:

• Large amounts of capital
• Teams of analysts and fellow traders providing ideas, market news and "feel"
• State-of-the-art analytical programmes
• Strict internal trading and compliance rules
• A direct line into the exchanges (or with other institutional liquidity providers like brokers, dark pools etc) for trading

… All of which give them a massive edge over independent traders.

Day trading reality is very different from the get-rich-quick schemes often portrayed. Independent traders generally manage and trade using their own money. These traders’ incomes depend on their trading performance. In comparison to institutional traders, they may have limited market and trading platform choices, and limited capabilities to keep up with news and price changes.

Using a broker for some trades, even if more expensive, may be a useful additional source of information and market "feel", in addition to joining some of the financial communities out there online, though we suggest using any of the information there with extreme caution.

CAN DAY TRADING BE A PROFESSION? COMPLETED. ✅

Sources:

1. https://www.investopedia.com/articles/trading/05/011705.asp
2. https://www.taxprofessionals.com/articles/day-traders-the-difference-between-an-institutional-and-retail-day-traders-4473
3. Header photo by Unsplash