Trading stocks is something that plenty of people do for a living, and if you’re successful in this field, it can lead to a very comfortable lifestyle indeed.
Creating your own stock trading business is a step beyond this, as your aim here will be to buy and sell assets on behalf of clients, which comes with the opportunity for greater rewards, as well as involving bigger risks.
Understanding what it takes to start a stock trading business is vital before you go any further, so here’s an overview of the things you need to know to decide whether it’s the right route for you.
How To Start A Stock Trading Business: Here’s What You Need To Know
Considering compliance requirements
When starting any new business, compliance is important. That applies whether you’re getting into stock trading or launching an eCommerce site.
You’ll also need to be licensed and registered with FINRA and comply with whatever regional regulations are imposed on this particular profession.
Of course, none of this will apply if you’re trading stocks and shares using your own money. For that reason, many traders get started solo before eventually joining a larger bank or brokerage.
Getting to grips with investment strategies
There are a lot of different tactics and techniques when it comes to trading and investing in the stock market.
For some, value is the most important metric that determines whether or not they buy or sell. The aim is to find stocks that fall below where they believe the true price should be and buy them before they appreciate.
For others, growth investing is where it’s at. You’re looking for companies with the potential to go stratospheric in the future, relying on hard evidence rather than pure speculation.
There are many other strategies to consider, and you might combine several best to serve your interest and those of your clients.
Understanding automated investing
Automated investing is an interesting trend, as it entirely takes the human trader out of the equation and replaces them with algorithmic analysis to choose which stocks to buy, sell, and when.
There are all sorts of automated investment platforms out there, and these tend to be developed by large, established banks and brokerages because of the steep upfront costs involved. So while you might not be able to conjure up your automated investment solution, you could harness an existing one to help with your trades, at least in the short term.
Stock trading isn’t for anyone who’s risk-averse because, by its very nature, the market can go down as well as up, and there are no guarantees that bullish periods will persist indefinitely or that bearish sentiment won’t lead to months or even years of turmoil.
There are ‘safer’ approaches to trading, of course, and your risk tolerance will largely determine the type of business you build and the kind of client you attract. High-risk, high-reward trading is generally achieved with short-term investments, while longer-term strategies might not net returns that are quite as impressive but have less chance of leaving you in the red.
Running a risk assessment will give you peace of mind about your business’s viability. However, the metrics measured here aren’t related to investment risks but other factors such as operational costs, economic conditions, etc.
Looking into liability
If you own a business, it’s best not to be held liable for the ups and downs it will inevitably experience, which you can do by setting up an LLC.
By doing so, you won’t be responsible for paying any debts your business accrues and will also be insulated from any legal matters which might crop up further down the line.
Your stock trading company will falter without a good plan, a level-headed strategy, and the right paperwork. You need to take your time, assess all the angles and develop an approach that matches your abilities, not just your ambitions.
It’s better to start small, slow, and build momentum over time instead of going all-in on day one.