Becoming a day trader has always held a strong appeal to many investors and those working in the sector. The flexible hours, working from wherever you want, all the while making a substantial profit – it’s undoubtedly an attractive proposition. But has the uncertainty of Brexit curbed this fervour?
Although undoubtedly a factor to be considered, the UK’s withdrawal is not a reason to abandon ambitions of making day trading into a career. Instead, those wishing to pursue it should make sure to keep abreast of developments as they occur, taking into account the knock-on effect the negotiations in Brussels may have on various markets.
Here are some tips to help any prospective day traders prepare for their new career:
Understand how Brexit impacts trading
Historical political events have always had an effect on trading and Brexit is no exception. However, this can be seen as an opportunity rather than a reason to steer clear of trading as fluctuating markets have the potential to be shorted or successfully bet against. Forex, in particular, has often provided just such an opportunity as big policy changes have historically led to a drop in the value of the pound. An example of this was the UK leaving the Exchange Rate Mechanism, which led to the advent of Black Wednesday. Similarly, the day the result of the referendum saw the pound fall to a 31-year low against the USD.
Practice and plan
As with many things in life, practice is essential. Luckily, technology now allows testing of a trading idea before actually risking any real money. This is known as backtesting and demo accounts like this one allow you to practise trading with £10,000 virtual funds, gives you access to exclusive educational content and to test strategies on the go with the free mobile app. A trading plan based on this information is also advisable, as it provides a written set of rules detailing your entry, exit and money management criteria.
Familiarise yourself with the types of markets
There are four main markets, futures, options, currencies, and stock markets. The following two are most likely to be of interest to those at the start of their day trading journey:
- Stocks: This gives you the option of trading stocks in your choice of industry or country. Beginners may be tempted to avoid the turmoil of Brexit and begin by trading stocks outside the UK. There are four types of stocks to choose from: Growth stocks, new issues, defensive stock and dividend (yield stocks). You should stick to trading the same stock(s) and look for stocks to trade each day.
- Currencies: The foreign exchange market is one of the few that is directly impacted every time a decision is made concerning Brexit. Delays, proposed deals and the result of the general election have all resulted in fluctuations in the GBP value for better or worse. You can use this to your advantage although those new to trading may wish to keep trades small. Close monitoring is required in order to make prudent decisions about when to buy or sell your chosen currency pair.
Use a stop loss and close out at the end of the day
A stop loss can be either a percentage or a currency amount and is the set risk that you are willing to accept with each trade. It is designed to limit exposure and losses and using one is commonly accepted as good practice.
Regardless of the market you decide to trade in, it is also advisable to close out at the end of the day – especially considering the volatile nature of the Brexit process. Updates on the UK’s withdrawal from the UK may impact stocks or the value of the pound overnight and could affect your trades.