Am I going into trading too soon?

_Super

I've managed to deposit the maximum of £15k into my S&S ISA for the year but I'm not really the passive income type. I wondered if £15k is a reasonable amount to start day trading with?

The biggest issue I'm facing is the trading fees which for my particular broker is £12 per trade and is certainly going to add up. Sure I don't mind paying £24 in fees if the trade makes me £200 but I'm more focused on how much money I can lose rather than how much I can make.

Should I give it a few more years so I've got about £45k or is £15k a good starting point?

masonic

Is there something special about this broker? Because you can find alternatives that charge less than £6 per trade.

Aegis

The question to ask is how you plan to day trade to aim for profit on average. Most people who try this anecdotally seem to make less than a simple buy and hold strategy, especially at the low end of the value scale where the fees add on to the spread and stamp duty to make quite a significant barrier to profit.

Have you invested in anything before?

Thrugelmir

_Super wrote: »

I wondered if £15k is a reasonable amount to start day trading with?

What's the attraction of day trading? Do you have information that market traders don't?

bowlhead99

If you are going to be day trading then (a) your ISA platform is unsuitable and (b) your bankroll is too small.

You can't just use a regular £12 per trade broker whose service is designed for one off 'investing' style trades rather than high volume short duration margin trades, as the fees will kill you.

Whether you win or lose a trade is likely a very close run thing as there is no particular reason to suspect you have an 'edge' - you have never even played the game before. So half the time you will lose and the other half the time you will win and give up an eighth of the 'win' in fees (£24 of a £200 profit). Compare to playing a hand of blackjack where the house edge is 0.5% and enough to make it a long term losing game for the players. Even if you had some natural luck and miraculously won 10% more than you lost, that's only £20 on £200 so £24 fees is enough to turn it into a 2% loss and that's before you pay the 0.5% of stamp duty.

If you are looking to cash out profits of a minimum £200 a go to pay the fees and win something significant enough to make a difference in your life (because you're not patient enough to wait for the 5-10% a year investment returns from conventional investing), presumably you are willing to lose some multiple of that £200 in the trades that don't work out? Perhaps you would set yourself a stop loss of losing £1000 on a deal but hope to 'win' £200+ each time? So, if you have a bankroll of £15000 and are essentially playing a game where you can lose £1000 per deal - what are you going to do for a bankroll on day two when you've lost your entire capital on day one?

So-
Step 1: go away and get a much bigger bankroll. While you are doing that research money management, trading platforms and trading techniques and practice practice practice with a dummy account and realistic (i.e. small) trade sizes so that your bankroll will last a three month daily losing streak.

Step 2: start trading and realise that the practice was useless because it didn't really matter when you were playing with fake money as the psychology is totally different to when it's your life savings. With real money you can't realistically break all your own sensible rules to gamble yourself out of a hole like you did with the fake money, nor reload your account thinking 'well of course I would never have placed that silly losing trade if I was doing it for real'.

Step 3: grind out a lot of trades using up a great deal of your time at a negligible win rate and make nothing significant out of it with the very much smaller deal sizes which you realise are necessary to avoid extinguishing your bankroll.

Step 4: With nothing significant to show for your huge commitment of cash, time and effort, take your (statistically, heavily diminished) bankroll and go and put it in traditional investment products.

There is a cheat mode, a shortcut known as Step 0.5. Give up on the idea.

redbuzzard

Do you have any experience or knowledge of day trading?

All you have to do with buy-and-hold investing is to put your money into actively or passively managed equity funds or a good spread of stocks and wait, to make money although you will have to put up with some volatility. The dice are, in effect, loaded in your favour.

Day trading has much more in common with betting on horse racing. It is possible to make money with considerable knowledge, experience, time and effort, but most people without those will lose their money.

If that is news to you, then you are not ready. If it isn't, then at least you have a inkling of the risks.

Personally I wouldn't go anywhere near it:)

jimjames

_Super wrote: »

I'm more focused on how much money I can lose rather than how much I can make.

Should I give it a few more years so I've got about £45k or is £15k a good starting point?

I'd say it's probably best to start now.

If you are focused on how much money you can lose then at least you'll only lose £15k now. If you wait until you have £45k then you'll be able to lose £45k.

By learning with the £15k you should realise that day trading isn't a realistic way to make money long term and avoid wasting the other £30k that you'd otherwise have done without that learning experience before switching to other strategies.

_Super

Thanks for the replies. I think I'll leave the day trading as I'm definitely not experienced enough and have probably not taken into account the true loss potential of trading.

I'm fine with letting my money sit in a S&S ISA but trading just appeals more, feels like I'm actually doing something, as a hobby almost. Nevertheless I'll read a lot more about trading and in the mean time keep my money in the ISA and just adding to it.

One thing I've noticed browsing the forums is everyone seems to say avoid trading, you'll lose etc etc but there are millions upon millions of traders both private and in the public sector who do trading for a job... surely they don't all lose otherwise they wouldn't be in the job.

Anyway thanks again for the tips, I think I'll keep my money where it is for now.

Gadfium

_Super wrote: »

but there are millions upon millions of traders both private and in the public sector who do trading for a job... surely they don't all lose otherwise they wouldn't be in the job.

Who said that they are the same traders from year to year?
And, they are playing with someone else's money and not their life savings....

bigfreddiel

_Super wrote: »

there are millions upon millions of traders both private and in the public sector who do trading for a job... surely they don't all lose otherwise they wouldn't be in the job.

There may be millions of traders, but I doubt it. Where did you get that figure?

Of those traders how many are trading for themselves? It won't be millions!

Next those who are trading on behalf of a stockbroker, we'll the broker wants you to trade, he doesn't care if you win or lose, he still gets his trading fee. In fact they want you to trade.

Now I'm sure you've heard of Warren Buffett, the sage of Omaha? He is a buy and hold investor. He may only trade once a year because he only buys 'winners' (okay he does make some mistakes like buying Tesco's) and then holds for the long term, and guess what he's a billionaire!

Day trading is gambling - open a spread betting account instead.

Cheers fj

bowlhead99

_Super wrote: »

One thing I've noticed browsing the forums is everyone seems to say avoid trading, you'll lose etc etc but there are millions upon millions of traders both private and in the public sector who do trading for a job... surely they don't all lose otherwise they wouldn't be in the job.

I'm not sure if you are just prone to exaggeration but those statistics don't bode well as evidence of your maths discipline as you enter the world of day trading. Millions upon millions?

In this country we have about 38 million people of working age. Exactly how many millions of those people have secret lives as day traders or do it by way of employment?

We have less than 6 million people working in the public sector - say 1.5 million in education, 1.5 million in healthcare, 1.1 million in public administration, 1.5 million in 'other' - I guess police, fire, army, whatnot. How many million of those public sector workers are trading shares of listed companies as part of their day job??

Perhaps you mean 'thousands' rather than 'millions upon millions' are involved in trading shares, for their (private sector) jobs. The UK does after all have one of the largest financial services hubs in Europe and so it is unsurprising that people can find employment as traders. Working for large organisations they have access to extremely expensive resources, infrastructure, the distilled experience and dedicated staff of their entire organisation, and large pools of cheap capital, with tiny expenses in proportion to what they are investing, and markets tend to rise over time which can help them out. Good traders get bonuses and bad traders lose their jobs and do something else. This has no bearing on whether you can take a week off work and turn your £15k into an annual salary.