Stock trading as future self employment?
February 17, 2024 8:11 AM Subscribe
I am disabled by migraine and have been a stay at home mom for ten years. In five years or so I will need to support myself more. I have developed an interest in the markets etc. I have time to learn and simulate trades for years before actually trying with real money. More inside…
Due to my circumstances this really appeals to me. My head hurts all the time and noise is awful and my body hurts. I have a huge interest anyway and follow the news and am reading a couple books about trading. I listened to radio shows 30 years ago and bought a few stocks but didn’t have any patience and gave up as soon as they went down. I’ve known a few people who “day traded” after watching people on you tube or taking a course on something or another and they got really burned- so that’s not what I was thinking. I want to actually learn how to do it (swing trading, not day trading) practice, learn more, and maybe earn a couple or 3 thousand a month- I don’t need to get rich. Just the equivalent of a part time job. Has anyone done this, is it possible? Assume I would have capital to start and wouldn’t risk anything big. My circumstances are unusual so assume I’m covered for housing/healthcare/retirement but need an income however actual part time jobs that work are not so easy due to my unusual situation. I’m mostly curious if learning how to trade is possible if you aren’t greedy and check about taxes etc.
Due to my circumstances this really appeals to me. My head hurts all the time and noise is awful and my body hurts. I have a huge interest anyway and follow the news and am reading a couple books about trading. I listened to radio shows 30 years ago and bought a few stocks but didn’t have any patience and gave up as soon as they went down. I’ve known a few people who “day traded” after watching people on you tube or taking a course on something or another and they got really burned- so that’s not what I was thinking. I want to actually learn how to do it (swing trading, not day trading) practice, learn more, and maybe earn a couple or 3 thousand a month- I don’t need to get rich. Just the equivalent of a part time job. Has anyone done this, is it possible? Assume I would have capital to start and wouldn’t risk anything big. My circumstances are unusual so assume I’m covered for housing/healthcare/retirement but need an income however actual part time jobs that work are not so easy due to my unusual situation. I’m mostly curious if learning how to trade is possible if you aren’t greedy and check about taxes etc.
Trading is effectively gambling. If you wouldn't try to make a living off of gambling then you probably shouldn't try to do the same with trading.
posted by june_dodecahedron at 9:10 AM on February 17, 2024 [13 favorites]
posted by june_dodecahedron at 9:10 AM on February 17, 2024 [13 favorites]
Best answer: I am here to tell you do not do this. Professional traders love people who want to "just make a living off the stock market." Because they will take all your money. There is no advantage you can wield as an individual trader over the vast mass of fintech wizards with genius-level software that reacts instantly to news and trends and swings other than "buy wisely and hold for a very long time" and that will not provide you an income. Unless the dividends on what you are holding is sufficient.
Don't do it. This is not the way.
posted by seanmpuckett at 9:27 AM on February 17, 2024 [38 favorites]
Don't do it. This is not the way.
posted by seanmpuckett at 9:27 AM on February 17, 2024 [38 favorites]
The average stock market return is about 10% per year, as measured by the S&P 500 index, but that 10% average rate will be reduced in real-terms value by inflation, currently around 5% every year, so call it a 5% real return.
Very few people, even experts with decades of experience beat the market average.
To get an income of around 2000/month or 24,000 per year you will need an initial investment of 480,000 which you are prepared to fully invest.
You also need to be aware that returns will be highly variable, you might lose 100,000 one year and then gain 150,000 the next.
There is money to be made in the markets but not without risk. Many of the most successful investors of all time got rich by investing other people's money for them and taking a cut of the transaction costs.
posted by Lanark at 9:39 AM on February 17, 2024 [14 favorites]
Very few people, even experts with decades of experience beat the market average.
To get an income of around 2000/month or 24,000 per year you will need an initial investment of 480,000 which you are prepared to fully invest.
You also need to be aware that returns will be highly variable, you might lose 100,000 one year and then gain 150,000 the next.
There is money to be made in the markets but not without risk. Many of the most successful investors of all time got rich by investing other people's money for them and taking a cut of the transaction costs.
posted by Lanark at 9:39 AM on February 17, 2024 [14 favorites]
Please don't do this.
posted by lalochezia at 9:42 AM on February 17, 2024 [8 favorites]
posted by lalochezia at 9:42 AM on February 17, 2024 [8 favorites]
Anyone can get the average market return by passively holding an index fund. What you are asking for is a return in excess of the average, which requires the entity at the other end make trades with a negative expected return. Given that the entity at the other end is likely a professional fund manager, insider, high speed algorithm with instant data access, or all of the above, this is almost never going to be the case.
In short, if the markets are inefficient (alpha exists), it is hard to imagine they are inefficient in your favor.
posted by justkevin at 9:53 AM on February 17, 2024 [7 favorites]
In short, if the markets are inefficient (alpha exists), it is hard to imagine they are inefficient in your favor.
posted by justkevin at 9:53 AM on February 17, 2024 [7 favorites]
DO NOT DO THIS!
What you are proposing is more likely to cause you financial hardship than financial gain. I'm serious.
I've been reading and writing about personal finance (including stock-market investing) for nearly twenty years now. When I started, I had the same mindset as you. I thought I could best the market. I was wrong. I lost $10,000 and am lucky it wasn't more (because I didn't have more to lose). My story isn't unique. In fact, it's typical. There's plenty of research to caution against this.
Here's the thing: Taken as a whole, the stock market averages gains of roughly 10% per year (before taxes and inflation). It yields real returns of about 6.8% (after taxes and inflation) per year. But this is the stock market as a whole, and those are average returns over decades. In the short term, it's very difficult to know what the market will do. Even the so-called "experts" can't do this. (The truth is that most professional money managers lose money, too, especially when you take into account taxes, fees, etc.) It's also tough to predict what any individual stock will do. Sure, some stocks look "obvious" in hindsight but that's only in hindsight. Amazon was a sure winner back in the late 1990s, right? Well, it didn't seem like a sure winner then. And if, like me, you thought HomeGrocer.com was a better option, well then you lost money.
Before you consider diving into this, I recommend more reading. Read The Random Walk Guide to Investing. Read The Four Pillars of Investing. Or, better yet, read The Simple Path to Wealth, which is easy to understand and summarizes a lot of the info found in headier books. Spoiler alert: All of these books warn against doing what you intend to do. They advocate long-term investing in index funds. Why? Because that's as close as you're going to get to a "sure thing" when investing. What you propose is closer to gambling.
As a final note, I'll point out that the world's greatest investor, Warren Buffett, also warns against investing the way you intend to invest. His advice for 99% of investors — including his wife when he dies — is to buy index funds, not individual stocks.
posted by jdroth at 9:56 AM on February 17, 2024 [27 favorites]
What you are proposing is more likely to cause you financial hardship than financial gain. I'm serious.
I've been reading and writing about personal finance (including stock-market investing) for nearly twenty years now. When I started, I had the same mindset as you. I thought I could best the market. I was wrong. I lost $10,000 and am lucky it wasn't more (because I didn't have more to lose). My story isn't unique. In fact, it's typical. There's plenty of research to caution against this.
Here's the thing: Taken as a whole, the stock market averages gains of roughly 10% per year (before taxes and inflation). It yields real returns of about 6.8% (after taxes and inflation) per year. But this is the stock market as a whole, and those are average returns over decades. In the short term, it's very difficult to know what the market will do. Even the so-called "experts" can't do this. (The truth is that most professional money managers lose money, too, especially when you take into account taxes, fees, etc.) It's also tough to predict what any individual stock will do. Sure, some stocks look "obvious" in hindsight but that's only in hindsight. Amazon was a sure winner back in the late 1990s, right? Well, it didn't seem like a sure winner then. And if, like me, you thought HomeGrocer.com was a better option, well then you lost money.
Before you consider diving into this, I recommend more reading. Read The Random Walk Guide to Investing. Read The Four Pillars of Investing. Or, better yet, read The Simple Path to Wealth, which is easy to understand and summarizes a lot of the info found in headier books. Spoiler alert: All of these books warn against doing what you intend to do. They advocate long-term investing in index funds. Why? Because that's as close as you're going to get to a "sure thing" when investing. What you propose is closer to gambling.
As a final note, I'll point out that the world's greatest investor, Warren Buffett, also warns against investing the way you intend to invest. His advice for 99% of investors — including his wife when he dies — is to buy index funds, not individual stocks.
posted by jdroth at 9:56 AM on February 17, 2024 [27 favorites]
I did this after I graduated into a historically dead job market. As soon as I could get a straight job, I did, and not just for the access to health insurance. You're sitting at a chair at your house but it is difficult and stressful (it wasn't even my money and I didn't need to survive off of the quality of my decisions). You don't have to be "greedy" to make ill-advised decisions in an attempt to consistently turn a profit. Also the taxes were very annoying to file for the amount of money "made."
posted by Selena777 at 9:57 AM on February 17, 2024 [1 favorite]
posted by Selena777 at 9:57 AM on February 17, 2024 [1 favorite]
I think the "don't do this" ground is well covered, but there might be something adjacent and less risky you could do with your interest in the stock market to make money, like freelance writing on the topic.
posted by space snail at 10:01 AM on February 17, 2024 [4 favorites]
posted by space snail at 10:01 AM on February 17, 2024 [4 favorites]
Best answer: If you have enough money to even consider this, then you have enough money to invest in a Three-Fund Portfolio, which is just about the most bulletproof way to invest and gain steady returns.
So do that instead.
posted by aramaic at 10:01 AM on February 17, 2024 [20 favorites]
So do that instead.
posted by aramaic at 10:01 AM on February 17, 2024 [20 favorites]
I understand the intuition: If you don't want to get filthy rich on the market, perhaps that opens up some opportunity to just make a living?
Unfortunately the market doesn't work that way; if there were a strategy you could use to safely get $50k a year, someone else would be doing that but investing 100x more and make $5 million a year, or a hundred times more than that, and so on. The market doesn't pay you like a job, for the time you put in; it pays you proportional for the money you put in. You are competing against the people trying to get filthy rich, and they will be running your game only working at it harder.
Collectively the people trying the hardest average a bit over 5% a year with moderate risk. (Bernie Madoff's scam was pretending he could safely get a bit more than that with lower risk, and that little bit was attractive enough to make him billions.) You can figure out how much you're willing to risk, and do a quick calculation as to whether you can reasonably hope to live off 5% or so of that--and if you can, it'd still be better to invest passively rather than trade actively.
As a side note, you can be in a boom (or bust) market for a long time, so it's very hard to draw lessons from simulated trades or anything like that. You "practice" for years and think you have a natural talent when every bet pays off, only to find your talent goes away about the same time a bear market hits. (I saw a lot of people fall into this trap during the '90s boom.)
posted by mark k at 10:10 AM on February 17, 2024 [7 favorites]
Unfortunately the market doesn't work that way; if there were a strategy you could use to safely get $50k a year, someone else would be doing that but investing 100x more and make $5 million a year, or a hundred times more than that, and so on. The market doesn't pay you like a job, for the time you put in; it pays you proportional for the money you put in. You are competing against the people trying to get filthy rich, and they will be running your game only working at it harder.
Collectively the people trying the hardest average a bit over 5% a year with moderate risk. (Bernie Madoff's scam was pretending he could safely get a bit more than that with lower risk, and that little bit was attractive enough to make him billions.) You can figure out how much you're willing to risk, and do a quick calculation as to whether you can reasonably hope to live off 5% or so of that--and if you can, it'd still be better to invest passively rather than trade actively.
As a side note, you can be in a boom (or bust) market for a long time, so it's very hard to draw lessons from simulated trades or anything like that. You "practice" for years and think you have a natural talent when every bet pays off, only to find your talent goes away about the same time a bear market hits. (I saw a lot of people fall into this trap during the '90s boom.)
posted by mark k at 10:10 AM on February 17, 2024 [7 favorites]
Best answer: Trading is effectively gambling. If you wouldn't try to make a living off of gambling then you probably shouldn't try to do the same with trading.
This is an ignorant statement. I have been a self employed trader since the mid 1980s. (Except for a few years in management of large publicly traded broker dealers.) I am still doing it. I hired and trained literally 100s of traders. At least half lost MY money and never traded again. I am not a gambler. I hate Vegas and AC. I would never invest my money in a business or in people that gambled for a living.
Having said that, based on what you wrote, I would not do it if I were you. My reasons are much different from the statements people are making above (and probably will below). The stock market is not a zero sum game as suggested above by saying for every winner there is a loser. Simply not true. The options markets ARE a zero sum game in total, but not on a trade by trade basis.
I think successful trading can be taught to the right person. It takes someone with discipline, a competitive mindset, introspection, a big ego AND at the same time a small enough ego to admit when you are wrong. That is only a partial list. Trading is an art not a science.
With all due respect, I would not trade if I were you not because the game is rigged as implied and stated above, but because you, based on the little bit you wrote above, don't have the mindset (or the skillset yet) to be successful.
This question should not devolve into an argument about trading. I do love to talk trading and will for hours.I am willing to have a discussion with you and delve more into your special circumstances. Memail me if you want.
posted by JohnnyGunn at 10:18 AM on February 17, 2024 [12 favorites]
This is an ignorant statement. I have been a self employed trader since the mid 1980s. (Except for a few years in management of large publicly traded broker dealers.) I am still doing it. I hired and trained literally 100s of traders. At least half lost MY money and never traded again. I am not a gambler. I hate Vegas and AC. I would never invest my money in a business or in people that gambled for a living.
Having said that, based on what you wrote, I would not do it if I were you. My reasons are much different from the statements people are making above (and probably will below). The stock market is not a zero sum game as suggested above by saying for every winner there is a loser. Simply not true. The options markets ARE a zero sum game in total, but not on a trade by trade basis.
I think successful trading can be taught to the right person. It takes someone with discipline, a competitive mindset, introspection, a big ego AND at the same time a small enough ego to admit when you are wrong. That is only a partial list. Trading is an art not a science.
With all due respect, I would not trade if I were you not because the game is rigged as implied and stated above, but because you, based on the little bit you wrote above, don't have the mindset (or the skillset yet) to be successful.
This question should not devolve into an argument about trading. I do love to talk trading and will for hours.I am willing to have a discussion with you and delve more into your special circumstances. Memail me if you want.
posted by JohnnyGunn at 10:18 AM on February 17, 2024 [12 favorites]
First, I completely 110% understand your situation; I'm at the beginning of my "migraines are affecting my ability to work" journey and know full well I wont be able to work full time as long as I need to unless I magically stumble across a treatment that works consistently (unlikely). I get where you're coming from. Let me tell you as someone who's looked a lot of options -- there are much less risky ways to make a stay-at-home income than stock trading.
Content creation (which then can earn money from sponsored content, affiliates and ads when you have an audience) for example can get you a part time income if you're willing to invest some time and a little money. Thats just the one I am familiar with. There are others.
Please please don't do the stock trading. This is the fastest way to lose the money you do have. You're much much better off investing it in an EFT or whatever and living off its gains and dividends. Or heck, maybe even online blackjack. Ok, not that. I'm kidding. Don't do that either. But what you're asking about is basically the same. Or worse, because perfectly played blackjack will only lose you about 0.5% over time.. you will lose more than that with short term trading in the stock market.
posted by cgg at 10:21 AM on February 17, 2024 [1 favorite]
Content creation (which then can earn money from sponsored content, affiliates and ads when you have an audience) for example can get you a part time income if you're willing to invest some time and a little money. Thats just the one I am familiar with. There are others.
Please please don't do the stock trading. This is the fastest way to lose the money you do have. You're much much better off investing it in an EFT or whatever and living off its gains and dividends. Or heck, maybe even online blackjack. Ok, not that. I'm kidding. Don't do that either. But what you're asking about is basically the same. Or worse, because perfectly played blackjack will only lose you about 0.5% over time.. you will lose more than that with short term trading in the stock market.
posted by cgg at 10:21 AM on February 17, 2024 [1 favorite]
missed edit window: ETF, not EFT. sigh. i blame migraine brain.
posted by cgg at 10:31 AM on February 17, 2024 [1 favorite]
posted by cgg at 10:31 AM on February 17, 2024 [1 favorite]
At least half lost MY money and never traded again
Aside from the question of whether and to what extent trading is gambling (and I submit that gambling isn't restricted to games of pure chance), I think another reason against it might be your health. How quickly or consistently will you need to be able to react to things? If you have a few days so bad you can't concentrate enough to analyze news or make good decisions, will that be workable? If yes, how often can that happen and still be workable? What is the stress and pressure going to do to you?
That might not be an issue in your situation, I don't know. But I'm someone also in a situation where "my head hurts all the time and my body hurts"... and work that relies on me being sharp and clearheaded during specific periods or even X% of the time is not something I can do for very long. And work that's stressful or intense is a recipe for setting off a bad health spiral.
posted by trig at 11:19 AM on February 17, 2024 [3 favorites]
Aside from the question of whether and to what extent trading is gambling (and I submit that gambling isn't restricted to games of pure chance), I think another reason against it might be your health. How quickly or consistently will you need to be able to react to things? If you have a few days so bad you can't concentrate enough to analyze news or make good decisions, will that be workable? If yes, how often can that happen and still be workable? What is the stress and pressure going to do to you?
That might not be an issue in your situation, I don't know. But I'm someone also in a situation where "my head hurts all the time and my body hurts"... and work that relies on me being sharp and clearheaded during specific periods or even X% of the time is not something I can do for very long. And work that's stressful or intense is a recipe for setting off a bad health spiral.
posted by trig at 11:19 AM on February 17, 2024 [3 favorites]
Lots of data shows that more active trading leads to lower returns as fees pile up and emotional selling happens.
I think people feel more in control as they actively trade, since doing nothing feels wrong. But minimizing fees and not trying to time the market is how you will catch as much of the market gains as a retail investor can expect to catch. You won't beat the market in the long term, but you can outpace inflation and maybe grow your nest egg a bit.
posted by Sauter Vaguely at 11:49 AM on February 17, 2024 [4 favorites]
I think people feel more in control as they actively trade, since doing nothing feels wrong. But minimizing fees and not trying to time the market is how you will catch as much of the market gains as a retail investor can expect to catch. You won't beat the market in the long term, but you can outpace inflation and maybe grow your nest egg a bit.
posted by Sauter Vaguely at 11:49 AM on February 17, 2024 [4 favorites]
Response by poster: I sent JohnnyGunn a message, and I hope you respond because I would love to talk a little bit about all this. But WOW: I’m a little sad… I wanted to think this was possible if you had 2-3 years to learn. But thank you everyone… you’re right. And there is just so much crap online telling you how they can do this that and the other for you and you’re thinking: if you can do this? Why are you doing this?
posted by pairofshades at 12:56 PM on February 17, 2024 [1 favorite]
posted by pairofshades at 12:56 PM on February 17, 2024 [1 favorite]
Response by poster: But thank you everyone. I’ll just be crossing my fingers for the big Index fund. :-)
posted by pairofshades at 1:05 PM on February 17, 2024 [2 favorites]
posted by pairofshades at 1:05 PM on February 17, 2024 [2 favorites]
Best answer: Very tentative advice, but could it make sense to become a financial journalist?
posted by Nancy Lebovitz at 2:05 PM on February 17, 2024 [2 favorites]
posted by Nancy Lebovitz at 2:05 PM on February 17, 2024 [2 favorites]
Going back to my initial point about content creation… a large percentage of those folks talking about how to do these money making things online are most likely making more from those youtube videos and selling their courses than doing the actual thing.
posted by cgg at 2:25 PM on February 17, 2024 [3 favorites]
posted by cgg at 2:25 PM on February 17, 2024 [3 favorites]
(Bearing in mind that many of those content creators aren't actually making much either...)
posted by trig at 2:29 PM on February 17, 2024
posted by trig at 2:29 PM on February 17, 2024
Best answer: In college I worked for an economics professor developing a stock market platform that could handle 20 users in a simulated market. The market allowed all sorts of different models as well as some quirks like different starting balances, different share valuations, or delayed information for some users.
He's gotten a few dozen papers and five books out of it, but as a non-economist I took away something else.
The stakes were low for the traders -- $20 for showing up and between $0 and $30 more based on how they did trading. But they were college students and at the time $20 was pretty good money. People would come back multiple times and experience was part of the data, but about 1 out of 50 people came right out of the gate as "supertraders".
Supertraders wiped the floor with everyone else, every time. You could bias the market against them as much as you wanted and they would still dominate. Some people are born to run the 4 minute mile and some people are born to trade securities. That's who you will be competing against.
I did do some day trading years later, but I went into it figuring that I would just lose my money over an extended period. I'm actually glad to say that didn't happen; I lost it fairly quickly. Now that the itch has been scratched I'm happily in index funds.
In your shoes I would invest some serious time in learning about the market and doing long term simulated trading. It may turn out that you have the knack for it. If you don't then I don't think I would try to force it.
posted by Tell Me No Lies at 3:17 PM on February 17, 2024 [9 favorites]
He's gotten a few dozen papers and five books out of it, but as a non-economist I took away something else.
The stakes were low for the traders -- $20 for showing up and between $0 and $30 more based on how they did trading. But they were college students and at the time $20 was pretty good money. People would come back multiple times and experience was part of the data, but about 1 out of 50 people came right out of the gate as "supertraders".
Supertraders wiped the floor with everyone else, every time. You could bias the market against them as much as you wanted and they would still dominate. Some people are born to run the 4 minute mile and some people are born to trade securities. That's who you will be competing against.
I did do some day trading years later, but I went into it figuring that I would just lose my money over an extended period. I'm actually glad to say that didn't happen; I lost it fairly quickly. Now that the itch has been scratched I'm happily in index funds.
In your shoes I would invest some serious time in learning about the market and doing long term simulated trading. It may turn out that you have the knack for it. If you don't then I don't think I would try to force it.
posted by Tell Me No Lies at 3:17 PM on February 17, 2024 [9 favorites]
One middling-stakes way to find out whether you have a knack for trading is to have a play with trading cryptocurrency. Just don't pick a coin that uses proof-of-work to as part of its blockchain validation process, because trading those wastes unconscionable quantities of electricity for no sound reason. Ripping off the clueless is already quite evil enough to be going on with; no need to get involved with burning down the world at the same time.
The point of using a cryptocurrency exchange for this kind of self-training is that crypto is insanely volatile compared to any other thing you could possibly trade, and the exchanges typically only take a very low brokerage cut out of each trade. Way smaller than the percentages that an actual stock broker would charge you to buy in and out of companies, bonds and whatnot. So you can play-trade furiously at very little expense. Never mind day trading, with crypto you can minute trade.
Set yourself up with an account on a crypto exchange local to you, stick $1000 in it, and buy $500 worth of some kind of dodgy coin whose price history amuses you when the Crypto Fear & Greed Index drops to Fear or below. Probably best to do that buy in bits and pieces rather than all at once.
Once your account has got so about half its putative value is in dollars and half in crypto, you can start kind of sloshing it back and forth between dollars and coin in response to ongoing market volatility, in a way that builds your holdings of both over time. The idea is to pay for some dollars with some coins when the coin price goes up, and pay for some coins with some dollars when the coin price goes down. You want to keep your individual trades fairly small relative to your total holdings so that you can keep that two-way sloshing motion going without ending up holding either all dollars or all coin at any given moment, because you always need to be able to slosh in either direction.
You always always always want to use limit orders for putting on all your trades, never never never trading at "market value". Because one of the things that happens fairly regularly, especially on smaller exchanges, is that some kindly member of the Greater Fool Pool doesn't understand how to do a limit buy order, instead deciding to acquire a fairly sizeable initial stake at "market value" because that takes less clicks. The wash trading bots that constantly manipulate the "current" crypto price to keep it waving enticingly like string in front of kittens stop doing that when they notice a large buy order appear, so only the first tiny portion of the Greater Fool's order is fulfilled at what they took to be the going rate; then the price just spikes and the GF ends up having their "at market" order matched by such Lesser Fools as have outstanding limit sells in place, sometimes at prices two or three times nominal. You can realize some quite tidy profits by shooting the fish who insist on occupying this particular barrel.
Worst case outcome: you picked the wrong time to enter the market, and you're eventually forced to choose between (a) walking away with your head held high, your sense that maybe this is harder than it looks validated by having lost enough actual money to sting and leave a dent, and a pile of utterly worthless tokens cluttering up your exchange account; or (b) putting in more dollars in the hope of turning those losses around "when" the market ticks up again. Option (b) is the slippery slope to a debilitating gambling addiction. I do not recommend it.
Best case outcome: you manage to build a pretty good intuition about the way a volatile currency market operates, and have fun playing with and getting all religious about assorted kinds of technical indicators, and you do actually manage to build up both your coin and dollar holdings until the dollar part is maybe double the $1000 you originally put in, at which point you pull your initial stake back out, then continue to play sloshy sloshy with all the free money still left in your exchange account until the whole market tanks. Which it will. Frankly, every day it doesn't is pure luck.
Oh, I forgot the worse worst case outcome: you picked the wrong exchange, and one day it just rugpulls you and steals all your coin and all your dollars.
I was lucky enough to see the best case outcome happen early enough in my ride to be able to keep on playing with totally free money for quite some months after recovering my initial stake. When the market did eventually tank, I cancelled all my outstanding coin buy orders and followed option (a). Kept my account open though, with my worthless coins and their associated ludicrous sell offers still just sitting there. Maybe in the fullness of time some Magnificently Greater Fool will take them off my hands at "market value" while not meaning to, but those coins owe me nothing at this point.
But I cannot emphasize enough that all of the above is recreational gambling with a very thin veneer of education. It's not investing. It's not even proper speculation. It's a huge Ponzi scheme devoted to persuading n00bs that it is an investment and then helping them get rekt. But it does function as a more useful market-feel intuition pump and attention holder than e.g. a regular scratchie ticket habit would.
So do not ever put yourself in a position where you're relying on trading crypto - or trading anything as absolutely arbitrarily volatile as crypto - to give thee this day thy daily bread. The Greater Fool Pool is right there waiting for all of us at all times, but that doesn't make it compulsory to please the crowd with a spectacular half gainer into the shallow end. All they will do is point and laugh and charge you double for a neck brace.
Also, always keep in mind that every time you buy $50 worth of dodgy coin and then sell it for $60, you will then owe some tax on that $10 of capital gains. Find out early how to go about extracting a complete log of all your trades from your currency exchange. You can't just say OK, I entered this market with $1000 and I'm leaving it now with $1500 so overall I've made $500 worth of taxable capital gain and never mind what happened in between. Not unless you enjoy inducing your local tax administration to give you the side-eye, anyway.
posted by flabdablet at 5:59 AM on February 18, 2024
The point of using a cryptocurrency exchange for this kind of self-training is that crypto is insanely volatile compared to any other thing you could possibly trade, and the exchanges typically only take a very low brokerage cut out of each trade. Way smaller than the percentages that an actual stock broker would charge you to buy in and out of companies, bonds and whatnot. So you can play-trade furiously at very little expense. Never mind day trading, with crypto you can minute trade.
Set yourself up with an account on a crypto exchange local to you, stick $1000 in it, and buy $500 worth of some kind of dodgy coin whose price history amuses you when the Crypto Fear & Greed Index drops to Fear or below. Probably best to do that buy in bits and pieces rather than all at once.
Once your account has got so about half its putative value is in dollars and half in crypto, you can start kind of sloshing it back and forth between dollars and coin in response to ongoing market volatility, in a way that builds your holdings of both over time. The idea is to pay for some dollars with some coins when the coin price goes up, and pay for some coins with some dollars when the coin price goes down. You want to keep your individual trades fairly small relative to your total holdings so that you can keep that two-way sloshing motion going without ending up holding either all dollars or all coin at any given moment, because you always need to be able to slosh in either direction.
You always always always want to use limit orders for putting on all your trades, never never never trading at "market value". Because one of the things that happens fairly regularly, especially on smaller exchanges, is that some kindly member of the Greater Fool Pool doesn't understand how to do a limit buy order, instead deciding to acquire a fairly sizeable initial stake at "market value" because that takes less clicks. The wash trading bots that constantly manipulate the "current" crypto price to keep it waving enticingly like string in front of kittens stop doing that when they notice a large buy order appear, so only the first tiny portion of the Greater Fool's order is fulfilled at what they took to be the going rate; then the price just spikes and the GF ends up having their "at market" order matched by such Lesser Fools as have outstanding limit sells in place, sometimes at prices two or three times nominal. You can realize some quite tidy profits by shooting the fish who insist on occupying this particular barrel.
Worst case outcome: you picked the wrong time to enter the market, and you're eventually forced to choose between (a) walking away with your head held high, your sense that maybe this is harder than it looks validated by having lost enough actual money to sting and leave a dent, and a pile of utterly worthless tokens cluttering up your exchange account; or (b) putting in more dollars in the hope of turning those losses around "when" the market ticks up again. Option (b) is the slippery slope to a debilitating gambling addiction. I do not recommend it.
Best case outcome: you manage to build a pretty good intuition about the way a volatile currency market operates, and have fun playing with and getting all religious about assorted kinds of technical indicators, and you do actually manage to build up both your coin and dollar holdings until the dollar part is maybe double the $1000 you originally put in, at which point you pull your initial stake back out, then continue to play sloshy sloshy with all the free money still left in your exchange account until the whole market tanks. Which it will. Frankly, every day it doesn't is pure luck.
Oh, I forgot the worse worst case outcome: you picked the wrong exchange, and one day it just rugpulls you and steals all your coin and all your dollars.
I was lucky enough to see the best case outcome happen early enough in my ride to be able to keep on playing with totally free money for quite some months after recovering my initial stake. When the market did eventually tank, I cancelled all my outstanding coin buy orders and followed option (a). Kept my account open though, with my worthless coins and their associated ludicrous sell offers still just sitting there. Maybe in the fullness of time some Magnificently Greater Fool will take them off my hands at "market value" while not meaning to, but those coins owe me nothing at this point.
But I cannot emphasize enough that all of the above is recreational gambling with a very thin veneer of education. It's not investing. It's not even proper speculation. It's a huge Ponzi scheme devoted to persuading n00bs that it is an investment and then helping them get rekt. But it does function as a more useful market-feel intuition pump and attention holder than e.g. a regular scratchie ticket habit would.
So do not ever put yourself in a position where you're relying on trading crypto - or trading anything as absolutely arbitrarily volatile as crypto - to give thee this day thy daily bread. The Greater Fool Pool is right there waiting for all of us at all times, but that doesn't make it compulsory to please the crowd with a spectacular half gainer into the shallow end. All they will do is point and laugh and charge you double for a neck brace.
Also, always keep in mind that every time you buy $50 worth of dodgy coin and then sell it for $60, you will then owe some tax on that $10 of capital gains. Find out early how to go about extracting a complete log of all your trades from your currency exchange. You can't just say OK, I entered this market with $1000 and I'm leaving it now with $1500 so overall I've made $500 worth of taxable capital gain and never mind what happened in between. Not unless you enjoy inducing your local tax administration to give you the side-eye, anyway.
posted by flabdablet at 5:59 AM on February 18, 2024
To say trading is not gambling is a fallacy. There are professional poker players out there who can consistently beat returns of an average player and there’s “rich guy on YouRube who hits red 29 times on roulette and considers himself a professional gambler.”
Stock trading is like programming. In my world it is more like professional services and management of large corporations than it is building a kernel for an operating system. There’s also those out there making $500 WordPress sites. I enjoy the math of trading but know the old adage of staying liquid is harder than being right. I also know that I could easily remake the Nike website with 3 programmers, a good PM and a designer (90% of good design is UX). You don’t have to rewrite C++ to solve an esoteric Amazon style problem or Cloudflare problem of optimizing a TCP-IP stack to be a programmer.
That said there’s a lot of charlatans in programming boot camps as there are in trading programs. In the end you can have $500M AUM but if you’re an outsider and don’t know anyone it’s very hard to be taken seriously. It’s like any other industry.
Try reading some basic textbooks on value investing, then see how far your math takes you. A LOT of trading is not boiler room. Its banks who have billions of dollars they could let sit in a bank or put it in low risk investments. That’s institutional investing. Your best bet is to have someone show you the ropes as it were. Just like new bootcamp grads want to skip basics of programming and just get something work that might make you feel good and spark your interest but a lot of it is boring day to day stuff.
posted by geoff. at 6:22 AM on February 18, 2024
Stock trading is like programming. In my world it is more like professional services and management of large corporations than it is building a kernel for an operating system. There’s also those out there making $500 WordPress sites. I enjoy the math of trading but know the old adage of staying liquid is harder than being right. I also know that I could easily remake the Nike website with 3 programmers, a good PM and a designer (90% of good design is UX). You don’t have to rewrite C++ to solve an esoteric Amazon style problem or Cloudflare problem of optimizing a TCP-IP stack to be a programmer.
That said there’s a lot of charlatans in programming boot camps as there are in trading programs. In the end you can have $500M AUM but if you’re an outsider and don’t know anyone it’s very hard to be taken seriously. It’s like any other industry.
Try reading some basic textbooks on value investing, then see how far your math takes you. A LOT of trading is not boiler room. Its banks who have billions of dollars they could let sit in a bank or put it in low risk investments. That’s institutional investing. Your best bet is to have someone show you the ropes as it were. Just like new bootcamp grads want to skip basics of programming and just get something work that might make you feel good and spark your interest but a lot of it is boring day to day stuff.
posted by geoff. at 6:22 AM on February 18, 2024
Some resources that might be helpful:
This site is a concise collection of some considerations regarding attempting to beat the market through active trading vs. simply trying to match market growth with a diverse portfolio (or, these days, an all-in-one/asset-allocation ETF). Of particular note are the copies of two figures from Leonard Mlodinow's book The Drunkard's Walk showing how the performance of the top mutual funds from 1991-1995 was essentially random during the subsequent five-year period (i.e., the managers of the top funds in '91 to '95 weren't gifted with unique insight; they were lucky).
I'd also recommend reading the book Reboot Your Portfolio; some of it is Canada-specific, but it's a good overview of the pros and cons of diversification when investing (contrary to the subtitle, it's not just about ETFs).
posted by CahootsMalone at 7:26 AM on February 18, 2024
This site is a concise collection of some considerations regarding attempting to beat the market through active trading vs. simply trying to match market growth with a diverse portfolio (or, these days, an all-in-one/asset-allocation ETF). Of particular note are the copies of two figures from Leonard Mlodinow's book The Drunkard's Walk showing how the performance of the top mutual funds from 1991-1995 was essentially random during the subsequent five-year period (i.e., the managers of the top funds in '91 to '95 weren't gifted with unique insight; they were lucky).
I'd also recommend reading the book Reboot Your Portfolio; some of it is Canada-specific, but it's a good overview of the pros and cons of diversification when investing (contrary to the subtitle, it's not just about ETFs).
posted by CahootsMalone at 7:26 AM on February 18, 2024
A somewhat-related tangent: you might check out Reddit’s Financial Independence subreddit: https://www.reddit.com/r/Financialindependence. The idea is to have enough income from investments that you don’t need to sell your labor for money. There’s a variety of reasons why people are interested in financial independence so not all of the advice and discussion there will apply to you, but the fundamentals could be useful: of spending less and accumulating more until average stock market returns cover your spending so you can invest in boring index funds and similar rather than taking big risks.
Some people in that community are obsessed with FIRE (Financial Independence, retire early). Others want to keep working but know that they don't need the job so they can push back on unreasonable requests. If you are going to be unable to work due to your migraines, that's basically a forced early retirement so we that sort of advice applies to you at least somewhat.
There are lots of paths to FI. Some people are trying to trade stocks or cryptocurrency to get enough money. Some people are becoming landlord purchasing houses with tons of leverage. Neither of those approaches appeals to me, so I'm doing what people in this thread are recommending: try to get average market returns with index funds (I use a 3-fund portfolio similar to what aramaic recommended above), accumulate money the slow boring way, and keep my spending in check so my nest egg is enough.
I don't know your situation so I don't know if this is helpful, but following the advice over there might be more achievable than becoming a profitable stock trader. I know your question is more about accumulating in the first place, but you said "maybe earn a couple or 3 thousand a month- I don’t need to get rich... Assume I would have capital to start" so it might be helpful.
posted by Tehhund at 7:36 AM on February 18, 2024 [1 favorite]
Some people in that community are obsessed with FIRE (Financial Independence, retire early). Others want to keep working but know that they don't need the job so they can push back on unreasonable requests. If you are going to be unable to work due to your migraines, that's basically a forced early retirement so we that sort of advice applies to you at least somewhat.
There are lots of paths to FI. Some people are trying to trade stocks or cryptocurrency to get enough money. Some people are becoming landlord purchasing houses with tons of leverage. Neither of those approaches appeals to me, so I'm doing what people in this thread are recommending: try to get average market returns with index funds (I use a 3-fund portfolio similar to what aramaic recommended above), accumulate money the slow boring way, and keep my spending in check so my nest egg is enough.
I don't know your situation so I don't know if this is helpful, but following the advice over there might be more achievable than becoming a profitable stock trader. I know your question is more about accumulating in the first place, but you said "maybe earn a couple or 3 thousand a month- I don’t need to get rich... Assume I would have capital to start" so it might be helpful.
posted by Tehhund at 7:36 AM on February 18, 2024 [1 favorite]
If you want to test out whether this is something viable for you in a no-risk environment, see if you can register for the ASX Share Market Game. You're given AUD50k to 'spend' and the game uses live data from the ASX. The game runs for six months from March.
posted by dg at 7:51 PM on February 18, 2024 [1 favorite]
posted by dg at 7:51 PM on February 18, 2024 [1 favorite]
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Supposing you invest it in a boring ETF that tracks the stock market. Then there will be some safe "withdrawal rate", a number of dollars that you can take each month as income with near-zero risk of running out of money too early (of course you need to define "too early" for yourself).
If you have enough capital for that safe withdrawal rate to meet your income needs, then this ETF investment is a safe way to get that income, with pretty much no work at all besides maybe getting an IFA to help you pick the exact initial investment. Depending on people's circumstances, they can usually safely spend between 3 and 4% of their initial capital annually, adjusted for inflation as they go.
If you don't have enough capital for that approach to give you enough income, then any MORE risky investment approach, like active trading, is going to be... More risky. You are much more likely to completely run out of money while you still need the income.
For this reason, trading actively is not for people who need an income. It's for people who have an income already, and have money that they are happy to basically set on fire, in return for the possibility of making big bucks. It's gambling - you don't do it with the grocery money.
posted by quacks like a duck at 9:06 AM on February 17, 2024 [37 favorites]