I am a new trader with under $25,000 looking to day trade, what should I do to start?

[Newc2]

Trade with ultra small position sizes eg risking 0.25% of capital per trade.
Not sure how that would work for daytrading. Maybe not even worthwhile but I've recently realized that my trading would have been better had I risked much less than the 1% touted

 

[Palindrome]

I risk 1.8% per trade... new traders should risk 0.0001%

 

[qlai]

You are drinking cool aid from Warrior Trading et. al. -> doesn't matter which setup you go, you'll be broke in the end anyways.

I wander what your reasoning is? Unscalable/Unsustainable, maybe? Can't argue it doesn't work.

I don't think there's a market that is more skewed against the retail trader than equities

Ok, so it's fragmented. How is it a problem for your average daytrader? You have provided lots of insightful info regarding infrastructure, but I don't see how it's relevant to a guy trading 25k to 5M account. He will not be market making. US Equities market is the most retail friendly due to regulations, imho. Forex and Cryptos ... Anything goes ... You don't even have access to an official/regulated data feed to reference. Maybe your style of trading takes advantage of such inefficiencies but equities are too mature for them? Curious to know your opinion.

 

[ehsmama]

I have been preparing to go live for a while now, but the PDT rule has made it a lot more complicated. I am sure most of you did not start with a balance of $25,000, so I would like to ask how you all got started with a limit of 3 day trades a week on a margin account. I understand that a cash account is an option, but I am not ready to opt for that. If that is what you all used to get started I will probably follow in your footsteps. I am just looking for some guidance by some succesfull traders. So to sum up my question, what should I do to get started with an account balance of a few thousand dollars. As with the PDT rule I can only complete 3 day trades a week. Thank you for your guidance.

Use options..deep in the money

 

[d08]

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.

I route to CSFB AES for certain orders so they would handle the details. I couldn't imagine sending an order to the usual destinations as a whole, that order would be pillaged as you say. The strats I use also interact with dark volume.
I understand CSFB screws me as well but they seem to screw me less than expected. Which is all I can ask for at this point.

The exceptions here are extremely liquid ETFs and such in which I'm an ant and blend in.

IEX orders have also been a massive help, the executions are far superior to anything sent to ARCA, NASDAQ or anywhere else. They at least partially have solved the venue timing problem.

IB likes to market their SMART but the penalties you pay on executions are massive.

I completely agree that it's a huge hide and seek game now. Anyone using the "plain" orders is just a meal for the HFT.

 

[d08]

Ok, so it's fragmented. How is it a problem for your average daytrader? You have provided lots of insightful info regarding infrastructure, but I don't see how it's relevant to a guy trading 25k to 5M account. He will not be market making. US Equities market is the most retail friendly due to regulations, imho. Forex and Cryptos ... Anything goes ... You don't even have access to an official/regulated data feed to reference. Maybe your style of trading takes advantage of such inefficiencies but equities are too mature for them? Curious to know your opinion.

Uhm. If you're trading mid/smallcaps at quiet hours and have a $50k position that you want to liquidate in minutes, you will have to learn this game. You'll often have a 0.15 spread on a $40 stock and hitting it with a market is extremely costly. Putting a limit in the middle is an even worse idea.
Anyone with an account above $100k needs to know this stuff really.

Why do you assume the US equities are most retail friendly? I trade non-US as well and the fills seem to be better. Purely anecdotal but seems there aren't so many games being played.

 

[qlai]

Why do you assume the US equities are most retail friendly?

Compared to US Forex and Cryptos. I am not familiar with non-us so can't comment.

If you're trading mid/smallcaps at quiet hours and have a $50k position that you want to liquidate in minutes, you will have to learn this game.

Unloading big position in a thin market, and you want someone to just take the other side no questions asked? So you are the one playing the hide and seek games then. I'm not knocking you, but it's not fair to say you are getting screwed, imho.

 

[Sprout]

I have been preparing to go live for a while now, but the PDT rule has made it a lot more complicated. I am sure most of you did not start with a balance of $25,000, so I would like to ask how you all got started with a limit of 3 day trades a week on a margin account. I understand that a cash account is an option, but I am not ready to opt for that. If that is what you all used to get started I will probably follow in your footsteps. I am just looking for some guidance by some succesfull traders. So to sum up my question, what should I do to get started with an account balance of a few thousand dollars. As with the PDT rule I can only complete 3 day trades a week. Thank you for your guidance.

What have you been doing to prepare?

 

[d08]

Compared to US Forex and Cryptos. I am not familiar with non-us so can't comment.

Unloading big position in a thin market, and you want someone to just take the other side no questions asked? So you are the one playing the hide and seek games then. I'm not knocking you, but it's not fair to say you are getting screwed, imho.

Well, forex and cryptos are the wild west. Any regulation they supposedly have is a joke.

I have to play the "hide and seek games" even though my positions aren't that big -- I might be just 5% of the vol but HFT sniffs stupid retail out.

The future should be auction orders only but that's not happening, so dark pools it is. The rest can keep playing poker where one side (retail/mutual funds) plays with open cards.

 

[tomorton]

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".

No enterprise with a 90% failure rate and a 5 year start-up time (or 10,000 hours of learning or whatever way its put) is worth undertaking.

Therefore, taking this summary as fact, seek an alternative approach to trading. Use a proven strategy which is simple enough to be learned in 1 day and thoroughly understood in 2 more: demo trade it for 1 month until consistently profitable: extend this in 1 month increments until consistency is achieved. This almost certainly excludes daytrading.