Do You Need a License to Day Trade?

Day trading can be an excellent choice for you to generate profit. It is a risky option, and you will need a lot of capital and knowledge. A successful day trader is constant and has a strategy for every action; however, do you need a license to day trade? 

You do not need a license to day trade. The one thing you’ll need is capital. If you do not have an account with at least 25,000 USD, you won’t be allowed to trade during the day. You will also need skills like money management and trading strategy. Knowing the market and securities is also a must.

Keep reading if you want to become a day trader but don’t know how to start. We’ll tell you the requisites and give you the best tips for day trading. 

IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!

What Does a Day Trader Do?

A day trader buys and sells securities (stocks, funds, etc.). They purchase these securities after the opening of the markets and sell them before the end of the day. By doing so, the day trader can make up a large profit per day. 

Day traders capitalize on short-term trades while using a large amount of leverage. As it is a highly profitable trading strategy, many day traders will continuously pay attention to any news related to the stock market and the best companies to trade. 

Being attuned with the market’s news will guarantee you the best results if you want to become a day trader. You will need to check several times a day to know when to keep or sell your trades.

However, this sort of trading technique is a high-risk one, and it requires many different skills for it to be profitable. The primary skills day trading requires are consistency and a strategy, which you can only make by understanding the market and securities. 

These are some of the most common strategies used by day traders: 

• Scalping: It allows you to make a large number of small profits throughout the day by seizing stock price changes. 
• Range trading: This strategy uses resistance and support levels to determine when to buy or sell new stocks. You can achieve this by identifying oversold (support) or overbought (resistance) stocks. 
• News-based trading: This strategy means using the volatility caused by news in the global markets. From elections to wars, anything that can create an impact on the market can benefit or damage your profits. 
• High-frequency trading: This is a strategy used by those with knowledge in algorithms and data science. Day traders use large amounts of information to predict and take advantage of market inefficiencies. 

What Are the Requirements for Day Trading?

As mentioned before, you do not need a license to day trade. However, there are still some requirements you’ll have to meet. 

The first thing you need to know about day trading is that you need an account with at least 25,000 USD to perform any operation. If your equity falls below 25,000 USD, you will lose the ability to perform any functions until it gets back to 25,000 USD.

If you use trading apps, you can start with smaller equity, like 500 USD. This can be a safer, lower-risk way to get started on the market. We recommend this route if you are a complete novice. However, the profits will be smaller than in the regular market. 

Other requirements for solo day traders are a fast internet connection and trusted software to perform the trades. 

What Are the Advantages and Disadvantages of Day Trading?

Day trading can present many advantages and disadvantages depending on your experience and knowledge of the stock markets. 

Advantages of Day Trading

• It is a quick way of making money. You can lose a lot of money in hours, but you can also make a lot of money in a day. Day trading is highly risky but also highly profitable. 
• There won’t be overnight risks. Markets are so volatile that a stock or position’s price can change overnight. Day trading prevents this risk, as you will not hold any position overnight. This is because a day trader sells all his positions before the market’s closure. 
• There are not many requirements. You don’t need a license or any other official title to start day trading. You can even start small by using apps and websites designed for beginner traders like Robinhood or Etoro.
• You can do it from anywhere in the world. Day trading only requires you to have a laptop and a strong internet connection. You can perform any trade from anywhere in the world as long as you connect during the market’s working hours. 

Disadvantages of Day Trading

• It is a stressful trading technique. The main focus of a day trader is to make the most amount of money during the day. It means being 100% focused on the market during its working hours. It can become quite stressful if you are not used to a high-paced work environment. 
• It requires a lot of discipline. It combines the stress of freelance work with the high-risks of average trading. You’ll need to set your times, and you will have to make sure you are 100% focused while working. You have to plan before performing any operation. You have to live in the markets 24/7 if you are serious about day trading. 
• You’ll be at a disadvantage. Many big trading companies use trusted algorithms to perform their trading. The algorithms are worth thousands, and most day-traders don’t have the means to acquire one. You’ll be facing these companies, and they will have the upper hand. 
• You can lose a lot of money in a day. Trading is risky, but day trading can be even more dangerous. As you will have to open and sell positions on the same day, you might end up losing thousands in hours. 
• There is a risk of being classified as a pattern day trader. The Financial Industry Regulatory Authority (FINRA) will classify you as a pattern day trader if you perform more than four day-trades through the span of five business days. If the FINRA declares you as one, you’ll be subject to more regulations and scrutiny. 

Best Tips to Become a Successful Day Trader

• Know yourself. Can you take high risks and accept the consequences, whether good or bad? If the answer is yes, then go ahead, but we recommend not to become a day trader if you can’t. 
• Understand the markets. You can day trade with positions in the US, Hong Kong, Europe, or any primary stock market. But to do so, you’ll need to know how they work, what hours they open, and every detail you can learn to understand each market better. 
• Understand securities. Security can be a stock, a fund, an option, and more. By understanding how each works, you’ll be at an advantage over many amateur investors. 
• Set up a strategy. Do not start day trading without a plan. Plan each movement, each position, and when to sell before you begin your day trade. 

Author’s Recommendations: Top Trading and Investment Resources To Consider

Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.

• Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.

• Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!

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Conclusion

You do not need a license or any official title to start day trading in the market.

There are a few requirements you’ll need to meet to become a day trader. You’ll only need an account with at least 25,000 USD if you want to start in the big leagues, but you can day trade with 500 USD if you start with an app like Etoro or Robinhood. 

We recommend using different accounts to perform day trades. By doing this, you can avoid the FINRA classifying you as a pattern day trader. 

BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!

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