Maybe you like the idea of trading, but after reading this book, you’ve decided that working for yourself making large numbers of short-term trades isn’t exactly what you want to do. But then what options are there? I put forward several ideas for alternative activities that might better match your interests than day trading. These include other career options, different ways to invest your money, and entertainment that gives you the excitement of trading without the same amount of risk.

Proprietary Trading for an Investment Company or Hedge Fund

Day trading is a solitary pursuit, and not everyone who wants to trade also wants to run his own business and work by himself all day. Good thing many companies need people to trade for them. Investment companies, brokerage firms, and hedge funds hire traders. These people are often known as prop traders, short for proprietary, and their job is to trade money for the firm’s account. These traders may have to follow a set style, or they may be free to trade as they see fit. Prop traders don’t keep all their profits, but they get a small salary, benefits, and a bonus that represents a generous cut of the money they make.

Proprietary trading lets you combine the safety net and camaraderie of a job with the excitement and potential huge returns of trading. It’s a good option for those who want to spend their days with other people.

Many firms have training programs that pay entry-level employees low salaries, no matter how much money they may have made at other jobs. These junior staffers often do a lot of clerical work and run errands for the senior traders. If they show an aptitude for the business, they’ll be promoted quickly. The market is a meritocracy.

Trading for an Agricultural, Energy, or Commodities Company

The options and futures markets were developed to help commodity companies manage their income and expenses better. That’s why the traditional products on those exchanges almost seem funny in the era of modern finance: pork bellies, soybeans, and orange juice.

But you know what? Those traditional customers for those traditional products are still active, and they need people to help them. Energy companies, growers, food processors, and metals companies need someone to trade barrels of oil, bushels of corn, live cattle, and silver futures. They are often more interested in hedging — using trading to reduce risk rather than increase return — than in trading to maximize return, but depending on market conditions and firm philosophies, they may be open to traders who want to take on risk.

Joining an Exchange

In the olden days, day trading was impossible because individuals could not afford to get a data feed, let alone execute orders. People who wanted to trade for themselves had to move to a city with an exchange, submit their membership application, pay their fees, and go to work on the floor.

Although floor trading is going away, the exchanges are not. They still have members — who can trade on the floor or electronically — and they have a lot of services for their members. If you really want to be close to the action, you can join. It’s not cheap; for example, membership (also known as a seat) at the Chicago Board of Trade is running around $700,000 and requires background checks, financial statements, and licensing. (The membership itself has value, and people have been known to buy it as an investment.)  Many exchanges will allow you to lease membership in order to have access to the floor and the electronic exchange at a lower cost, and that runs $3,000 to $4,000 a month at the Chicago Board of Trade.

Many of the exchanges are now public companies. Instead of buying a membership or a seat, those who want trading privileges buy a special class of stock that can only be sold to someone who is qualified to trade on the exchange. You can buy regular shares of the exchanges through your brokerage firm — you can even day trade those exchange shares, if you like, but owning them won’t give you membership privileges.

You can find out more about the different exchanges. If you are interested in membership, go to each exchange’s Web site, as the policies and prices vary greatly.

Traditional Investing for Your Own Account

I’m thinking that some people who buy this book don’t really want to day trade. Instead, they want to manage their own investment accounts during the day instead of having a regular job. You can manage your money yourself without making a high volume of short-term trades, and given the huge numbers of day traders who wash out, you might be better off. True, you won’t have the drama of day trading, and you won’t need to focus your attention for hours on end. Instead, you’ll be researching stocks and mutual funds, allocating your portfolio among several different assets, and tracking your tax liabilities.

Joining an Investment Club

One reason why day trading is so risky is that traders are by themselves, learning as they go along. Unlike working for a company that might have paid apprentices or junior employees who get paid to stay up to speed, a day trader often pays others for training, coaching, and research that are of varying degrees of helpfulness. It can be scary, and expensive, and disheartening.

There is a good option, though. Before you take up day trading, consider forming or joining an investment club. These are groups of people who want to learn more about investing. They may be neighbors, members of the same church, or participants in the same community organization. Club members pool small amounts of money, such as $50 a month, meet regularly, and learn about different types of securities, methods of research, and styles of trading.

One place to get more information on how to join, start, and operate an investment club is that National Association of Investors Corporation, a nonprofit organization dedicated to promoting investment clubs and individual investing. If you are relatively new to investing, you may want to check out an investment club before taking up day trading.

Taking a Swing at Swing Trading

Swing trading is a cross between day trading and longer-term investing. Instead of closing out their positions at the end of each day, swing traders may hold their positions for a few days or even weeks. It’s a way to change the risk and return profile. Price changes can happen overnight when you are away from your computer monitors, but the luxury of time means that there are more opportunities for your position to work out.

Swing trading favors traders with a little bit of patience, who can handle the risk of holding open positions overnight, and who have some interest in industry news and fundamental information. 

Gambling for the Fun of It

Sloppy day traders are often gamblers: they aren’t following a strategy; they just like the rush and the expectation of the positive return. This means that they aren’t always paying attention to the market, nor are they ready to commit to the discipline of spending days in front of a screen and evenings reviewing market activities. If you are more of a gambler than a trader, why not just admit it?

Assuming that you are not a problem gambler, keep your day job, contribute to your retirement plan, and set aside a portion of your spending money to take to the casino. And don’t gamble more money than you bring.

When you gamble, the odds always favor the house, so you’ll probably lose money. When you day trade, the odds on each particular trade are even or slightly in your favor, at least before considering commissions, but not so much that you are guaranteed an easy return. So if it’s the rush and not the return you want, admit it and book a flight to Las Vegas.

In a casino, you get some of your losses returned to you in the form of drinks, show tickets, and other comps. Of course, it’s cheaper to hold on to your money and pay cash for your drinks. That’s my strategy. I hate to lose, so I don’t gamble in the first place.

Play Day Trading Video Games

Want the excitement of day trading without the risk of losing your money, either to the markets or to the casino owner? Think you can figure out the markets, but don’t want to put real money or your job on the line to find out? Then why not play a day trading video game?

Well, okay, it’s not exactly a game; it’s a simulator designed to teach you to day trade. The RapidSP Day Trading Simulator, gives you all the excitement of day trading without risk to your capital and without the sales pitch. It’s a low-cost, low-risk way to enjoy the day trading experience.

A simulation doesn’t involve real money. Many traders find that when their own money is on the line, they don’t trade as well as when they trade for fake money or for someone else. That’s part of the psychology of facing the markets, and you can get some tips for managing.

Trade in Demo Accounts

Simulators are a good way to learn day trading, but they cost money. If you’re looking for a free way to try day trading in general, or if you are a day trader thinking of adding new securities to your repertoire, you can trade in demo accounts. Many brokerage firms allow prospective customers to start with a demonstration account, both to check out the broker’s capabilities and to see if day trading is right for you. Some brokers even run contests, where prospective traders trade paper accounts (that is, not real money), and the winners receive money for a real trading account.

If you are thinking of day trading, you owe it to yourself to do some simulation to work through your trading system. And if you just like the idea of playing around with trading, paper trading in a demonstration account can help you have fun without risking your hard-earned money.

Brokerage firms offer demo accounts to entice you to buy, and you can expect that someone will call or email you to see how things went. You can cut down on clutter in your email in-box by opening a free Web mail account just for your demo trading.

Sign Up for a Trading Contest

Each year, some prominent financial media companies offer trading contests. People can sign up for them, manage a paper portfolio (investing or day trading, as they please), and the participant with the greatest return wins a cash prize.

Three popular ones are
  • Forbes Stock Game
  • TheStreet.com’s Beat the Street Contest
  • CNBC’s Million Dollar Portfolio Challenge

These offer all the fun of trading with none of the risk — although cheating scandals in 2007 mean that the future of these contests is up in the air. Consider also that they offer all the fun of trading with none of the oversight of the Securities and Exchange Commission or the Commodity Futures Trading Commission.


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