I am a new trader with under $25,000 looking to day trade, what should I do to start?
- Thread starter Peter S
- Start date
Understandable that you want to "get involved in trading and make the big bucks"... ASAP, of course.
But to make money trading in the markets and not lose your ass, you need to be SHARP and disciplined. Likely you are not ready to succeed at this time.
It's not important that you "trade" right now but rather learn. My best advice would be to "learn the SPX with the assumption you could trade as often as you like with no restrictions". Test/practice your methods in a paper trading account. During this learning time, save money and build up your capital. With a coming market smashola (?), the SPX could get down to a level at which you might be able to trade the ES mini-futures contract without much leverage. Don't expect this learning/testing time to take any less than 3 years* and could take more, but once you "get it", you'll have a life-long skill that will be invaluable.
*Years ago I asked an institutional options traded associated with my B/D to "teach me how to trade". He said, "that would take 5-years or so". I replied, "I don't think it would take that long, I'm pretty sharp". He said, "I was counting on your being sharp".
Last edited:
Very curious here what benefit Direct Market Access has. I trade EOD myself.
I’m aware of payment for order flow but as far as I know your required to get a price improvement over the NBBO. I’m wondering where DMA would help. As an EOD trader I generally just use a marketable limit order. Trying to get those extra pennies has cost me more for my strategies. However when I have got a price improvement I always knew I’d of probably done better if I had just sent in a limit order.
Market NBBO is Bid 95/105 ask, I send market/marketable limit order to buy for 106. I should get 105 at the Lit exchange for the NBB0 105 or price improvement.
Neither the two brokerages I’ve used ever gave me worst fill then I was expecting.Either I got the NBBO if marketable or my limits were executed if price pushed through.
Perhaps DMA would improve execution on a larger order that pushes through multiple prices so it would benefit to access liquidity on a certain exchange? I was under the impression DMA was more towards limit orders and rebates if passed on by brokerage or perhaps scalping.
You mentioned you worked at a prop firm I believe so just trying to learn something here.
Well, the game isn't really noticable when your orders have such a huge edge (like willing to pay up 1$).
For you 2-5cts slippage doesn't do very much since you probably trade for points. But think about it what that does to your R:R when you trade for 10-20cts with 5cts leeway. turns a 4:1 into a 2:1 pretty quickly.
I think everybody knows how the "frontrun the customer limit order" game works so I'm not touching it here.
The hidden game, however, is played with market orders/marketable limits, because the lit exchanges have different execution speeds.
Here's the thing: As a market maker, you want to get fills on the strong side and avoid toxic fills on the weak side.
So as a very (very, very) basic example lets look at the SPY and the ES. The ES has a huge order of 100,000 contracts sitting at 2684 and you are making a market in the SPY.
You will quote 1000 shares at 268.20 and 200 shares at 268.60. 1000@20 is your strong side. Even if you get taken out, you'll probably refresh at least as long as the 100k cars in the ES don't disapear.
60 for 200 is your weak side and you don't really want to get filled here, but what can you do? You are a MM so you have to quote, right?
Well, not so fast. There are 13 lit exchanges so you decide to quote the minimum on every exchange lets say 15 shares each. Now a customer comes along and wants to buy your 200 shares by using some kind of smart router by either IB, TD Ameritrade, you name it.
The "SMART" router decides which exchange his order goes to which way it's going to split up and so on. But those things are never synchronous.
The order goes out and hits the 15 shares you posted at EDGX first and since you are so fast, you cancel all other 15 share orders at the remaining 12 exchanges before the SMART router has a chance to take them out.
So the customer either doesn't get the full size or he will be slipped. In your example, you'll probably get 15 shares at 105 and the rest at 105.02
Renaissance has a patent for a SMART router that uses an atomic clock so all the small orders go out at the same time because of this exact problem. You can read it here: https://patents.google.com/patent/US20160035027
With DMA you can chose which venue you want to route to. When I did equities, I had to learn order routing first. There are extra venues for passive midpoint orders (yes, you can post hidden limit orders between the bid and the offer), then there are SMART routers that are specialized on scraping all the venues that allow posting passive midpoint orders.
There are darkpools, then SMART routers that scrape darkpools, there are darkpools where you can post passive midpoint orders, there are midpoint peg orders... I think you know what I mean. When I stopped, there were dozens of custom venues, darkpools, special routers and 219 (!) individual order types.
In other words, when you go through retail brokers you have access to probably 1% of the options you'd have with DMA.
Or have you ever heard of ARCAPNPB (undisplayed limit order that is priced on the contra side of the spread and becomes visible once the spread trades away from it), BYXMPL (BYX exchange midpoint order), DBStealth (Deutsche Bank darkpool aggregator), EDGXMPM (exchange for trading shares at the midpoint price)? No? But that are some examples of were the business is...The retailer without DMA only gets the breadcrumps.
Since the introduction of RegNMS, the euity markets became a hide and seek game. And I can tell you that the majority of the big volume is done either in darkpools or OTC.
From all the guys who used to make a living with daytrading stocks, only the microcap guys and the "stocks in play" guys survived. In microcraps you trade against retail idiots and in play stocks are full of whales who need to get in or out quickly and don't care about price.
So I'd think really, really hard and long weither you really want to get into that game from the retail side. It's probably even better to trade CFD's against a bucketshop.
For you 2-5cts slippage doesn't do very much since you probably trade for points. But think about it what that does to your R:R when you trade for 10-20cts with 5cts leeway. turns a 4:1 into a 2:1 pretty quickly.
I think everybody knows how the "frontrun the customer limit order" game works so I'm not touching it here.
The hidden game, however, is played with market orders/marketable limits, because the lit exchanges have different execution speeds.
Here's the thing: As a market maker, you want to get fills on the strong side and avoid toxic fills on the weak side.
So as a very (very, very) basic example lets look at the SPY and the ES. The ES has a huge order of 100,000 contracts sitting at 2684 and you are making a market in the SPY.
You will quote 1000 shares at 268.20 and 200 shares at 268.60. 1000@20 is your strong side. Even if you get taken out, you'll probably refresh at least as long as the 100k cars in the ES don't disapear.
60 for 200 is your weak side and you don't really want to get filled here, but what can you do? You are a MM so you have to quote, right?
Well, not so fast. There are 13 lit exchanges so you decide to quote the minimum on every exchange lets say 15 shares each. Now a customer comes along and wants to buy your 200 shares by using some kind of smart router by either IB, TD Ameritrade, you name it.
The "SMART" router decides which exchange his order goes to which way it's going to split up and so on. But those things are never synchronous.
The order goes out and hits the 15 shares you posted at EDGX first and since you are so fast, you cancel all other 15 share orders at the remaining 12 exchanges before the SMART router has a chance to take them out.
So the customer either doesn't get the full size or he will be slipped. In your example, you'll probably get 15 shares at 105 and the rest at 105.02
Renaissance has a patent for a SMART router that uses an atomic clock so all the small orders go out at the same time because of this exact problem. You can read it here: https://patents.google.com/patent/US20160035027
With DMA you can chose which venue you want to route to. When I did equities, I had to learn order routing first. There are extra venues for passive midpoint orders (yes, you can post hidden limit orders between the bid and the offer), then there are SMART routers that are specialized on scraping all the venues that allow posting passive midpoint orders.
There are darkpools, then SMART routers that scrape darkpools, there are darkpools where you can post passive midpoint orders, there are midpoint peg orders... I think you know what I mean. When I stopped, there were dozens of custom venues, darkpools, special routers and 219 (!) individual order types.
In other words, when you go through retail brokers you have access to probably 1% of the options you'd have with DMA.
Or have you ever heard of ARCAPNPB (undisplayed limit order that is priced on the contra side of the spread and becomes visible once the spread trades away from it), BYXMPL (BYX exchange midpoint order), DBStealth (Deutsche Bank darkpool aggregator), EDGXMPM (exchange for trading shares at the midpoint price)? No? But that are some examples of were the business is...The retailer without DMA only gets the breadcrumps.
Since the introduction of RegNMS, the euity markets became a hide and seek game. And I can tell you that the majority of the big volume is done either in darkpools or OTC.
From all the guys who used to make a living with daytrading stocks, only the microcap guys and the "stocks in play" guys survived. In microcraps you trade against retail idiots and in play stocks are full of whales who need to get in or out quickly and don't care about price.
So I'd think really, really hard and long weither you really want to get into that game from the retail side. It's probably even better to trade CFD's against a bucketshop.
I would not day trade... look to trade positions medium term or longer term. Intraday is the hardest to learn. Don't start with the hardest.
Trade small, and look to hold for multiple weeks.
Don't forget to spend 1000's of hours HAND back testing before you implement real money...that's the trick.
80% of your trades should be with the trend
20% should be trend reversal (or less then 20%)
Trade small, and look to hold for multiple weeks.
Don't forget to spend 1000's of hours HAND back testing before you implement real money...that's the trick.
80% of your trades should be with the trend
20% should be trend reversal (or less then 20%)
Well, that is your opinion, but I disagree.
He be asking for daytrading, not swing/position. And I can tell you, with $25K in capital, in these volatile markets, a new trader should not be trying to hold overnight, especially as overnight margins across the board keep increasing, at least at the CME. That should tell you something.
The volatility we have been seeing all year, and especially since Oct 3rd, is perfect training ground for the up-and-coming daytrader. Daytraders need volatility, and we got it babe. Whoop! It's nuts!
OK... putting aside the fact that he's a novice and more than likely will lose his money either way.... your quote is coming only from your perspective. And I certainly respect that. You sound like a serious pro. But lets just say this kid has talent and can spot stocks that will move. Your advice that you have given to him is very discouraging. I mean does it really matter if he bought 400 shares of AAPL this morning at $172.90 or $172.92? It closed at $174.
From where he's at in his great experiment he can (and should) use limit orders. They get filled. I see no reason to tell him he needs to pay (to even have a chance) some exorbitant amount of money for some blowtorch order/broker system that saves 1/100th of a penny. You are portraying this as waaaay to hard and its only from your perspective. Any discount broker will work just fine. Its easy to make money if you're good.
Albeit more easy to lose if you're not.
When you only have three round-trip trades per week, it's kinda f'd up.... BUT.... he can do it with ditm options (designating the account as a cash account). Thats tricky though. It gets him around around the PDT rule, the caveat being your one day trades can't exceed the account value.... but it takes some serious skill. Trading like this is truly "part art part science". Shout out to Lugar.
All that said.... at least imo.... there is no need for that which you cited to beat the game and win.
That's assuming talent. Big assumption. But you don't need $500,000 worth of diagnostic equipment to change a $2 spark-plug.
Last edited:
Makes sense. I do agree with you. BUT...if they got very little or no skill...the money will evaporate quicker day trading then swing... in my opinion.
Equity market micro structure is a frigging mess. I’ve watched quite a few documentaries on the flash crash( vpro has one I thought was well done).
I understand the idea of having all these exchanges was to create competition and reduce cost for customers but theirs got to be a better way.
For instance I was reading my brokerages “Best Execution” legal disclosure and for the TSX they mention the ECN’s they participate in. With smart routing the order will also ping (test)against “Nasdaq CXD” and “triac MATCH” exchanges to see if an order can be executed at a better price on a dark exchange. The amazing part is how this happens in less then a second and algorithms can adjust in that time.
It’s like Eric Hundsader mentioning spreads in a documentary I watched about HFT. He talks about how HFT cuts the spreads down but he asks how people measure spreads. He gives examples of a stock bid/ask moving multiple percent in a second but the spread never widens past a penny. So is spread a good way to measure cost to trade?
Anyways thanks for reply. Market micro structure is a topic I find interesting.