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Tools of an Independent Trader

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Stock Market GameThis is part two of a three part series discussing life as an independent trader. This is the second post, covering the tools of an independent trader, written by an independent trader. You may want to first read A Typical Day in Life as an Independent Trader, the first part of this three part series.

What Tools Do Active Traders Need?

Let me say again, active trading is not an advisable career path for most people. It takes years, if not decades, to learn the tactics to prevent huge losses.
That said, if you have the moxie to venture into the deep water, here is what you’ll need:

  1. A low cost broker. I prefer Interactive Brokers since they have amazingly low prices, but you will pay inactivity fees if you do not meet their monthly quota. Other online brokers like E*Trade (Power E*Trade) or TD Ameritrade offer high volume, low cost trading.
  2. A trading program. Various trading programs are available and, not surprisingly, all of them claim to be the best. I prefer a free program by the name of QuoteTracker because of its flexibility and ease of use (not recommended for options or futures traders).
  3. Real time quotes. Don’t even think about becoming a trader unless you have this most basic of tools. You can get quote based data streams nearly anywhere these days, and if you sign up for an active trading system at many brokers (like Interactive Brokers, Power E-Trade, TD Ameritrade), they will provide them for you and costs are rolled into the execution pricing.
  4. Real time news. Some people might say CNBC is enough, and they may be right, but there are traders who live and die by the stream of new incoming data. If you’ve ever seen the price of light sweet crude (i.e. oil) suddenly spike $3 higher in less than 60 seconds, you know what I’m talking about. Again, your broker can set you up with different news sources for a fee, and some of them may even be free.
  5. Investment capital of $25,000 or more. After the irrational exuberance of the late 90s and the rise of the day traders, the powers that be created new regulations stating that “pattern daytraders” must maintain a minimum of $25k in their account at all times. It’s basically a rule to protect the bored novices with an itchy trigger finger from daytrading 20 shares of IBM who are home sick with the flu.

That’s the basic kit. As you graduate to higher levels of technicality, you will likely need an additional computer monitor and maybe a backup means of executing your trades. Nothing worse than holding a volatile stock (or ETF) and your internet connection shuts down. By keeping your broker’s 800 number on speed dial or having a backup Blackberry execution service available, you have some extra insurance.

In reality, most trading systems can be as basic or complicated as you want them to be. Some might use four screens, two computers and T1 line, while others use only a laptop and a newspaper. It all depends on what you’re trying to accomplish.

This concludes part two of the series. If you haven’t read part one, A Typical Day in Life as an Independent Trader, I highly recommend it. Here’s part three, Precautionary Words from an Independent Trader.

This guest post was written by Matt of SteadfastFinances.com. He is a full time, independent trader with some extra time on my hands!

(Photo: photophonic)

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6 Responses to “Tools of an Independent Trader”

  1. barry says:

    good stuff! can’t wait for part 3!

  2. thomas says:

    ha! I couldn’t imagine trying to trade without real time tools. It’s like playing basketball blind.

  3. My Journey says:

    Matt,

    We have a planner in the office who trades A LOT, and probably makes more off the trading than the actual planning lol. On his desk he has a second monitor that I have heard been referred to as a bloomberg station or something to that affect.

    Can you explain what that is? Is it just for news?

    • Matt_SF says:

      I believe you’re talking about the “Bloomberg Terminal”. It’s a news & data program that is supposedly used by the major money managers (mutual funds, hedge funds, big money traders, etc.) but I don’t think you can trade stocks with it.

      I’ve never used it since I prefer more of a bare bones approach (keeps white noise to a minimum), but if you’re into tracking as much data as possible, it might be worth the cost.

      Your colleague probably needs to trade rather frequently to cover the costs because it’s not cheap. Just saw it costs ~$1500. Add executions onto that cost and you could be entering a place where excessive trading eats into profits… or capital.

      • haha says:

        you haven’t got a clue. you want to talk about trading and you don’t even know a traders best friend, the Bloomberg Terminal? it’s 22K/year rookie. i can’t believe you’re advocating high volume short duration trading with such lightweight tools and strategy


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