[Editor’s Note: The ASX Sharemarket Game is a great way to test and develop your day-trading skills, and experience what it’s like to trade the market each day. Participants receive $50,000 in virtual cash to invest in ASX-listed companies, using live prices in simulated real sharemarket conditions].

No doubt many of you have seen movies like Wall Street or, more recently, The Wolf of Wall Street, which pit the fabulous wealth of unrestricted trading – “Greed is good!” – against the cautionary tales of the protagonists receiving their come-uppance.  

They show a Hollywood-inspired highlife more focused on starlets than spreadsheets, and perhaps aren’t quite a true picture of trading.  

The reality is less movie star and more mundane. Clearly, some people can make a good living by trading regularly, without the need to flout the law.  Yet for most of us, investment is longer-term, building wealth gradually, but reliably.  

But, for the sake of argument (and this article), what are the benefits of becoming a successful share trader?  Why would someone throw caution to the wind to ride the rollercoaster of the stock market without the safety net of a job?  And what risks might they face?  
 

Setting up

Let’s look at what you need to get started:  

1. Have some money to invest

You can’t just wake up one morning and decide to be a trader.  You need money.  

Trading requires capital, particularly if you’re going to diversify and manage your risks.  The amount you allocate to trading will clearly have an impact upon your strategies and the kinds of assets you can invest in.  

2. Plan to draw an income

Unlike long-term investment, day trading needs to provide a reliable, regular return.  

If you’re throwing in the suit for the tracksuit to become your own boss, you’ll still need to be able to generate income to replace your salary – mortgages, grocery bills, and utilities don’t go away just because you’re not working for someone else.  
 

3. Know what you are doing

Share trading without knowledge is gambling.  To be successful, you'll need to have a strong grasp of financial markets, trading strategies, and risk management.  

Education and continuous learning are vital, if you’re going to be trading for a living, so do courses, attend events, and gain insights through joining a community of investors and online subscriptions that provide you with additional research and analysis.  
 

4. Get online

It probably goes without saying, but trading is no longer done by filling out and exchanging pieces of paper.  

To get into trading you’ll need a robust computer that can handle real-time data streams, technical analysis, and multiple trading platforms.  A reliable laptop and mobile phone mean that you can trade from anywhere – the park, the coffee shop, or sitting in the car waiting for a child to finish their sport.  

But that’s only part of it.  Get an online share trading account for buying and selling shares that offers low fees, a wide range of investment options, and good customer support, and that can cover all your buy and sell trades.  

5. Have a plan

A sound share investing plan aligns your investments with your objectives.  Before you go any further, ask yourself:  

• How will your capital be spread across different asset classes?  
• What proportion of your investment will go to each?  
• What are the potential risks, and how will you manage them?  
   

So, what are the risks?  

Obviously, the benefits of becoming a day trader are a sense of flexibility, being your own boss, the potential to make a lot of money if you know what you’re doing.  But there are risks: 
 

1. Do you know enough?  

Dealing with lots of markets, different sectors, and global economies means that you have to be pretty well informed.  

Along with monitoring targets, you’ll need to keep up to date with the traditional and online media, world events, and potential threats.  Daily investor email newsletters can help, but your own research is going to be important too.  
 

2. You’ve got capital, but is it enough?  

As noted earlier, share trading doesn’t always mean living the high life.  If you’re going to throw in your job, you need to have a lot of capital behind you.  

Here is a quick calculation: if the market averages a 7% return and you earn the current average full-time adult weekly earnings, you probably need $1.4 million [of capital] to invest to replace your current salary.  
 

3. Are you sufficiently diversified?  

As Australia is only 2% of the global market, you need a diversified portfolio.  

Successful traders operate in other major markets – the US, the UK, Europe, Asia – but these don’t operate our time (AEST).  

Managing your interests may mean many late nights and early mornings, so if you like your sleep, this may not be for you.  
 

4. Are you prepared for market fluctuations?  

Markets fluctuate regularly.  Becoming a share trader is like strapping yourself to a bungy cord – your skills and knowledge are going to help you cope with the experience, but you’re still going to bounce.  

And, like bungy jumping, this can lead to a spike in stress levels, particularly if your livelihood depends on it.  

Recessions, financial crises, and market crashes can happen – you need to be resilient and to have a plan to manage your investments through them.  
 

5. Are you keeping the tax office happy?  

Many Australian retail investors buy and sell shares sporadically and on average hold them 10-plus years, which keeps tax fairly simple.  

Share trading, though, brings a lot of complexity into your tax affairs, and more chances of falling foul of the ATO.  Before you decide to become a full-time trader, you may want to get some advice from a professional.  
 

6. Are you happy being on your own? 

The movies show a lot of parties, lunches, and networking among traders.  In reality, day-trading is a pretty lonely existence – just you, your computer, and your research.  It’s an introvert’s dream, but an extrovert’s nightmare.  

If you aren’t comfortable working by yourself, there might be better ways to enjoy investing while still engaging regularly with others.  
 

Have you considered long-term investing?  

If the above doesn’t sound quite so easy, longer-term investing may be preferable, giving you the chance to make money without the high-pressure ups and downs of day trading.  

The majority of members of the Australian Shareholders’ Association hold their shares for 10 years or more, benefitting from dividends and applying slow-and-steady strategies to their investments.  

By understanding your goals, constructing comprehensive strategies, and continually evaluating your decisions, long-term investing sets the stage for more gradual growth and a financially secure future. 

DISCLAIMER

This material is provided for information only. Nothing in this article is intended or should be interpreted as being financial-product advice. Investment advice can only be obtained from persons who are licensed in accordance with the Corporations Act. Views expressed do not necessarily reflect ASA policy.