Part-time day trading could be your answer if you find yourself, like many working-class individuals, seeking ways to boost income. I’ve personally increased my income, navigating the financial markets. While challenging, with dedication, education, and the right mindset this endeavor is rewarding —offering a potential buffer against inflation.

To embark on your part-time trading journey, start with the basics. Understand financial assets and asset types and align them with your risk profile. Research different account types and select the best trading platform—an essential step we’ll briefly guide you through today.

Understanding the different asset types:

• Equity (stock): A share of stock or an equity investment represents an ownership interest in a company such as MSFT, AAPL, WMT, GOOG, etc. It provides the owner a right to participate in the future earnings stream of a company.
• Debt: Something we are all familiar with: credit cards, student loans, mortgages. But what I am referring to in this case is a security in which the investor is provided with the promise of repayment at some future date in time in exchange for interest payments based on the terms of the agreement. For example, a company might issue a 5-year bond with a 10% interest rate and a $1000.00 face value. In other words, you are loaning the company 1000.00, and the company will pay you 10% or 100.00 each year (in most cases paid semi-annually), and at the end of 5 years, you will receive your 1000.00 back (provided the company remains solvent).
• Mutual funds: The most common method for smaller individual investors to invest in the market. They are generally less risky than investing in individual stocks because they combine investors’ money to buy a pool of individual stocks, spreading the risk over several companies. Mutual funds are considered open-ended as they issue new shares with each investment. The share price or net asset value is only calculated at the end of each trading session, and transactions only occur then.
• Exchange Traded Funds or ETFs: These funds are traded on the stock exchange. Unlike mutual funds, they can be bought and sold anytime during market hours, and the price is set based on supply and demand, the same as any stock trading on an exchange. Some funds invest in precious metals, currency, debt securities, industry sectors, themes, and just about anything you can imagine, and this is an excellent opportunity for a new trader who is just developing their approach, reducing risk, and or looking for low maintenance.
• Commodities/futures market: A basic good used in commerce, like grains, livestock, agriculture, metals, energy, and finance. Commodities trading is as old as civilization itself. It began as an exchange for trading one commodity for another—for example, wheat for pigs. America entered the commodities market in 1864 when the Chicago Board of Trade opened. The early markets primarily consisted of farmers and merchants who used futures to hedge the unpredictability of markets. For example, In April, when he begins planting, a farmer may want to lock in the price for corn that he will be harvesting in October. He can do this by selling a “futures contract” in April to sell his corn at a specified price in October. That price will be locked in regardless of what occurs with prices to his benefit or detriment. It is this uncertainty that creates opportunities for speculators like me. Unlike the stock market, the futures market trades 23 hours a day 6 days a week.
• Options: An option contract is a derivative that gives the buyer of the option the right to buy or sell a financial asset at a specified price at some point in the future. This also obligates the seller to buy or sell a financial asset at some point in the future. The key elements that you need to know about an option are:
  • Whether the option is a call, providing the buyer the right to purchase the underlying asset from the seller of the option, or a put, providing the buyer the right to sell (or put) the asset to the seller of the option contract.
  • The strike price. This is the price at which the asset will be bought or sold according to the contract.
  • The expiration date. This is the date the option expires if it is not exercised.

A call contract buyer succeeds if the asset price rises above the strike price (considered in-the-money). He can then exercise the option, purchasing the asset at the strike price or sell the option in the open market.

The seller of the call option is successful when the underlying asset remains below the strike price (considered out-of-the-money). The option will expire out-of-the-money (worthless), and he keeps the premium (the price at which the option was purchased).

The buyer of a put option is successful when the underlying asset’s price falls below the strike price (considered in-the-money). He can then exercise the option, selling or putting the asset to the seller of the option, or he could sell the option in the open market.

The seller of a put option is successful when the underlying asset’s price remains above the strike price (considered out-of-the-money). The option will expire out-of-the-money (worthless) and he keeps the premium.

Options are one of the most complex trading vehicles. They can be challenging to value and predict. There are many strategies, some very elaborate. They are also an excellent tool. They can be used as insurance, to generate income, reduce the capital requirement for big investment ideas, reduce risk, and produce phenomenal returns. They can also be risky, and you can quickly lose your entire investment. If you plan to trade options, do your homework, be sure you understand all the risks, and have a solid strategy before you begin trading.

• Forex/FX/currency exchange: Foreign exchange is the process of changing one global currency into another. This is the largest and most liquid financial market in the world. With an estimated average daily volume of over $7 trillion, currency is exchanged for commerce, trading, and tourism. Currencies trade in pairs against each other, for example, EUR/USD or the euro against the U.S. dollar. FX is a spot and derivatives market offering forwards, futures, options, and currency. It is also used to hedge against currency and interest rate risk and speculate on geopolitical events. This is another market that is open 24 hours a day, 6 days a week. (1)
• Cryptocurrency: These days, a conversation about the financial markets would only be complete with the mention of Cryptocurrencies. A cryptocurrency is a digital or virtual currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Most cryptocurrencies exist on decentralized networks using blockchain technology—a distributed ledger enforced by a disparate network of computers. While I have been a doubter in cryptocurrency, its popularity has been amazing. I liken it to the Dutch tulip mania in the mid-1600s, but so far, it has proven me wrong. Many believe blockchain and related technologies will disrupt many industries, including finance and law. (2)

Choosing the best trading app for beginners requires thorough research:

Once you have selected the instruments you plan to trade, you will need a trading platform to trade them on. There are a few things that I would recommend researching when you are looking for the best trading app for beginners:

• What features do they offer
• Is the platform user-friendly
• What are their expenses and fees
• Is your account safe
• Are quotes delayed or real-time
• How well do they execute trades
• What do their reviews say

Understanding the array of order types:

While we are on the subject, I am surprised by the number of traders unfamiliar with the different types of orders they have in their toolbox. Here is a brief review:

• Standard market order: This order will be filled at the current bid or offer. Some brokerage firms will work to get the best price. This is a feature generally called price or order improvement.
• Limit order: Placed by the trader above or below the prevailing market. This can be used to buy an asset on a pullback or sell when the price reaches a certain point.
• Stop Order: Placed by the trader above or below the prevailing market. The most common use of this order is as a stop-loss order to prevent an asset from moving to far against a trader’s position. This order can also execute a trade during a breakout or breakdown.
• Conditional orders: These are orders a trader places that are conditional on something else occurring. For example, I may only want to buy a stock if the S&P 500 trades above a certain level. I can place an order to buy contingent on the S&P 500 breaching that level. Or I believe that a stock will make a substantial move in one direction or the other due to an earnings report. But I don’t know which direction. I can place an order to buy if it goes above a certain price and sell if it goes below a specific price. Placing one cancels the other order. This means the other order is canceled as soon as one of those orders is triggered. This is one of the best tools a part-time trader has in his arsenal. If you can’t sit and watch your computer screen all day. This can mechanize that process, allowing you to participate in trades you would have normally missed or prevent you from chasing a trade.

Lastly, be aware of essential rules before diving in:

The last thing I want to cover in this article is a few rules you should be aware of before you start trading:

• Pattern Day Trader: This rule prevents traders with an account size of less than 25,000 from making more than 4-day trades in any consecutive 5-day period. Once a broker identifies you as a pattern day trader, they will restrict your account unless or until you maintain a minimum equity of $25,000.
• Wash sale: If an investment is sold at a loss and repurchased within 30 days, the initial loss cannot be claimed for tax purposes. Brokerage firms’ statements will reflect this disallowance in your cost basis. The price must rise above your purchase price and the disallowance before it reflects a gain.
• RegT and Freeriding: RegT is the regulation that governs the amount of credit that a brokerage firm may extend to their customers. On marginable securities, you can fund 50% of your purchase through credit, known as buying on margin. The difficulty for day traders and where it can become a problem for traders with cash accounts is that it takes two days for a stock transaction to settle. A situation arises when a trader buys and sells the same security before paying for it from the cash account. This is known as freeriding and is prohibited by RegT. Your brokerage firm must freeze the cash account for 90 days, requiring traders to fund their securities purchases with cash on the trade date.

Good news for those interested in day trading who don’t have the minimum 25,000 in equity in their account. The futures and Forex markets have smaller funding requirements, no pattern day trader restrictions, wash sale rules don’t apply, and because they settle immediately, there are no freeriding restrictions.

In conclusion, part-time day trading presents a viable solution for working-class individuals seeking to boost income. Navigating the financial markets, despite challenges, becomes rewarding with dedication, education, and the right mindset. This article provides a comprehensive guide, from understanding diverse asset types to choosing the best trading app and mastering order types.

Ready to take control of your financial future? Embark on your part-time trading journey today. Visit BlueCollarTraders.com for expert guidance on conquering the financial markets. Elevate your part-time day trading journey now!

Remember essential rules, explore various assets, and choose the right tools. Whether you’re a novice or experienced trader, informed decisions pave the way for success. Happy trading!

Sources:
(1) What Is Forex Trading? A Beginner’s Guide: https://www.investopedia.com/articles/forex/11/why-trade-forex.asp

(2) Cryptocurrency Explained With Pros and Cons for Investment https://www.investopedia.com/terms/c/cryptocurrency.asp