Many of you would have seen traders and stockbrokers portrayed as suave businessmen dressed in suits and ties and must have thought that being in the trading space meant having a fashionable life. However, a trader’s life is much more than glamour: it is hectic, stressful and risky.
But if trading is what you want to do, the job is also very exciting with a lot of learning involved. This article gives an insight into what a typical day of a trader’s life would be like at his workplace.
From a part-time trader who is investing a small amount just to get the hang of trading to institutional traders who deal with millions of dollars in a single deal, there are several types of traders and trading styles. For example, day trading and swing trading (the latter is a technique used by pattern day traders to avoid the PDT rule) are done by discretionary traders for a few days or weeks at most, while high-frequency trading takes a few seconds is almost entirely automated. Thanks to this wide variety of traders, there is no generic routine for all traders together.
In this article, to elaborate more on the daily life of a trader, we shall consider a full-time, individual, discretionary day trader: one who executes buy and sell deals by capitalizing on the intraday price changes due to supply and demand inefficiencies. There are plenty of part-time traders as well, who normally set aside an hour or two from their daily schedule away from their day job to trade. These people do not have access to the licensed software and data, often deal only in one or two markets and trade in far lesser quantities than a professional full-time trader.
The Typical Trading Day
1. Pre-Market Hours
The regular trading hours start at 9 or 9:30 AM local time in most places, so traders are usually catching up on the latest financial news and events around the world from various newspapers, websites and blogs. There are round-the-clock markets as well, and if you are dealing with foreign markets, you need to be aware of the time zones too (this is why many traders don’t get as much sleep as they should!).
Professional day traders would go to the office where they would have their own computer with access to the necessary financial software and datasets to help them with trading.
2. Early Trading Hours
The first half-hour is when the market is most volatile, so if you are a risk-lover wanting to make most of the volatility, this is when you should cash in. Depending on the type of market you are trading i.e. stocks, futures, forex etc., the volatility will start to come down at some point in the late morning, which is when risk-averse traders start trading. Lunch hours see minimal activity across all markets.
Throughout the morning period, traders are constantly looking out for opportunities. Traders will have their own goals to meet in terms of profit margins or a certain number of deals. The market sometimes moves fast enough that a few seconds delay in taking action could mean the loss of a big opportunity.
3. The Second Wave
The closing hour of the day is also typically active where the volatility goes up again, so traders would look for any additional opportunities to meet their target for the day. As the market closing time nears, traders close all their open positions and cancel unfulfilled orders. Note that open orders can sometimes get filled without the knowledge of the trader, which could result in losses, so the above step is very important.
Not all traders can trade in unlimited quantity within the standard trading hours; there are some rules in place which apply to specific types of traders. For example, if you are a pattern day trader, you would be aware of the pattern day trader rule, which was introduced to prevent excessive trading.
It states that pattern day traders must have a minimum of $25,000 equity in their brokerage (or margin) accounts, either as cash or particular securities or a combination of both, the violation of which will limit the number of trades they can execute to three round trips every five days.
4. Post-Market Hours
Most traders use this time to review the day and their performance, rectify mistakes and analyse missed opportunities. Taking a photo of the chart for the day helps you recollect the events of the day. Noting down details like hours traded, the number of winning and losing trades and any additional notes in a separate journal is a practice that traders follow. Later in the day, traders might also start planning for the next day, or go to bed early to catch some valuable sleep!
Note that this review part of a trader’s life is very important and is not just a daily activity; traders repeat this at the end of every week and month as well. People are new to the trading space use these notes and details to learn from their mistakes which carries them forward on their way to becoming professionals in the business.
5. Extended Trading Hours
While the normal trading hours end by early evening, extended trading hours refer to the trades that occur on electronic marketplaces, outside of the official trading hours of the exchange. For example, in the US, pre-market trading goes from 4 AM to 9 AM, exchanges are open from 9:30 PM to 4:00 PM EST and extended hours go from 4 PM to 8 PM.
Extended hours trading have a lot of risks associated with them like the lower volume of trade, uncertain prices and large spreads. However, they also pose lucrative opportunities to traders who want to quickly execute a deal based on the news which comes out after the exchange is closed. If it weren’t for extended hours, they would execute it only the market opens next.
Gear up for the Trader Life
By now, you would have a better idea of what a trader experiences every day. Though most days are “normal” with nothing phenomenal happening, there are exciting moments now and then and taking the right decisions during those key instances can be richly rewarding.