Intraday traders live in a fast-paced world of price and transaction volume data, taking advantage of the fluctuation of assets in the time span of a few seconds to a few minutes. Day traders started to rise before the market opened, reading the news, scanning the market, and watching channels such as CNBC and Bloomberg to understand the market direction of the day. When the opening bell rings, day traders have narrowed the range of stocks, derivatives or currencies that will be traded that day.
Day after day, this cycle will repeat itself as traders try to be one of the few people who can successfully screen random fluctuations in the market and make a profit. If a career in all these vortexes seems exciting to you, we explained an education degree that is good for trading in this lucrative but risky environment.
- Becoming a day trader is not a hobby—it’s a job. It requires skills, knowledge, especially discipline and focus.
- For most people, becoming a “retail” day trader means that you will work for yourself part-time at home. These traders come from different backgrounds and can have any number of degrees.
- On the other hand, professional day traders are employed by companies and use their funds to trade. Finance, computer science, and statistics degrees are highly valued by these employers.
Retail day trader
With the advent of electronic trading systems, day trading has become easier and more popular for retail traders. In the United States, a person only needs to deposit $25,000 worth of funds in their account to bypass the pattern day trader rules and start trading through one of the many discount brokers available. Because margin is sometimes four times the initial capital, and brokers compete with each other to provide the lowest commissions, day trading is increasingly becoming a potential source of income.
Retail traders come from different backgrounds, and just like any other form of self-employment, formal education is secondary in terms of experience, diligence, and enthusiasm in the chosen field.
Professional day trader
In the 1980s and 1990s, if the employers of traders were based on their tenacity, charm and intuition in trading, they served as assistants to floor traders or clerks on the stock exchange. Traders in this era learn from hard-knocking schools, and it is not uncommon to find traders with little or no formal college education in the pit. However, as the times change, the world of electronic trading has made the trading game more complex and fiercely competitive, and companies are under pressure to recruit the brightest talents from top universities. The following are the types of degrees that the recruitment departments of investment banks and hedge funds tend to favor:
- Finance/Business Administration: Recruiters are optimistic about a finance degree, because many of the concepts that traders will encounter will become a core part of the undergraduate course. Finance majors should have been exposed to the translation of accounting statements, derivatives, fixed-income securities, and corporate finance. In addition, universities tend to set high GPA standards for admissions to finance courses, and top undergraduates may use real funds to participate in actual portfolio management scenarios: this is a precursor to the investment decisions they may face when they are employed.
- economics: George Soros, Ray Dario and Jim Rogers are three people who are known for their macroeconomic trading philosophy. An economics degree will expose fledgling traders to business cycles, economic indicators, currencies, interest rates, and monetary/fiscal policies. Since history often repeats itself, economics graduates will be familiar with the internal workings of important policy decisions, economic shocks and crises, and their impact on a global scale. In addition, economic intuition will enable day traders to better understand the news flow and current events that may lead to trading decisions. Finally, an economics degree should expose undergraduates to basic regression and statistical analysis, both of which are used in futures trading.
- Computer Science and StatisticsAs trading becomes more and more computerized, it will be helpful for enterprising traders to understand how these electronic information flows work. In addition, the company employs a large number of computer scientists and statisticians in its risk management team, or writes complex trading algorithms that are widely used in high-frequency trading, statistical arbitrage, or market making. If you are a trader with quantitative thinking and are willing to let your program make all the decisions (thousands of times a day), then computer science will be an excellent major for your career. In addition, statistical concepts are widely used in intraday trading options, such as when gamma scalp crosses. An undergraduate background in computer science and statistics can lead to graduate work in financial engineering or quantitative finance-both of which are very lucrative in their own right.
- Applied mathematics, engineering, physics: Transactions can be incredible mathematics in nature, especially transactions related to derivatives. Mathematics, engineering, and physics are highly sought after by recruiters because they can understand incredible quantitative concepts while learning to apply them in creative ways. For example, the well-known Black-Scholes option pricing model can be simplified to a heat equation, and the update iteration of the option pricing model relies heavily on the stochastic volatility model.
Traders come from different backgrounds, reflecting everyone’s unique and extremely wide range of styles and techniques. However, since the market is quantitative in nature, a degree in quantitative subjects can be useful if you want to pursue a career in trading. In other words, an understanding of economics and finance is also very important, and a degree in business administration, finance or economics can also be a viable way to develop a career.
[ Many day traders are largely self-taught with a background in finance, economics, or mathematics. If you’re interested in day trading and would like to get a head start, check out InvestingClue’s Become a Day Trader course for a comprehensive introduction including over five hours of on-demand video, exercises, and interactive content from a full-time day trader and Wall Street veteran. ]