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10 Alternatives to Day Trading

Maybe you like the idea of trading but you've decided that working for yourself making large numbers of short-term trades isn't exactly what you want to do. What options are left? This article puts forward several ideas for alternative activities that may better match your interests than day trading. They include other career options, different ways to invest your money, and entertainment that gives you the excitement of trading without the same amount of risk.

Proprietary trading for an investment company or hedge fund

Day trading is a solitary pursuit, and not everyone who wants to trade also wants to run his own business and work by himself all day. Good thing many companies need people to trade for them. Investment companies, brokerage firms, and hedge funds hire traders. These people are often known as prop traders, short for proprietary, and their job is to trade money for the firm's account. These traders may have to follow a set style, or they may be free to trade as they see fit. Prop traders don't keep all their profits, but they get a small salary, benefits, and a bonus that represents a generous cut of the money they make.

Trading for an agricultural, energy, or commodities company

The options and futures markets were developed to help commodity companies manage their income and expenses better. A lot has changed in modern finance, but the traditional customers for the traditional commodity products of corn, soybeans, and orange juice are still active, and they need people to trade for them. They are often more interested in hedging — using trading to reduce risk rather than increase return — than in trading to maximize return, but depending on market conditions and firm philosophies, they may be open to traders who want to take on risk.

Joining an exchange

Although floor trading is going away these days, membership in the exchanges is not. Even the exchanges with publicly traded shares (which are most of them these days) have opportunities for traders to join in the fun by selling trading privileges to those who really want to be close to the action. It's not cheap; for example, membership (also known as a seat) at the CME Group runs around $480,000 and requires background checks, financial statements, and licensing. Many exchanges allow you to lease a membership in order to have access to the floor and the electronic exchange at a lower cost, which currently runs about $1,900 per month at the CME Group.

Traditional investing for your own account

Rather than day trade, you may want to manage your own investment accounts during the day instead of having a regular job. You won't have the drama of day trading, and you won't need to focus your attention for hours on end. Instead, you'll be researching stocks and mutual funds, allocating your portfolio among several different assets, and tracking your tax liabilities. If you aren't sure where to start, consider picking up a copy of Investing For Dummies by Eric Tyson (Wiley).

Joining an investment club

To get some experience before taking on the risks and expenses of day trading full time, consider forming or joining an investment club, which is a group of people who want to learn more about investing. Club members pool small amounts of money, such as $50 a month, meet regularly, and learn about different types of securities, methods of research, and styles of trading.

Taking a swing at swing trading

Swing trading is a cross between day trading and longer-term investing. Instead of closing out their positions at the end of each day, swing traders may hold their positions for a few days or even weeks. It's a way to change the risk and return profile. Price changes can happen overnight when you're away from your computer monitors, but the luxury of time means that there are more opportunities for your position to work out.

Gambling for the fun of it

Sloppy day traders are often gamblers: They aren't following a strategy; they just like the rush and the expectation of the positive return. This means that they aren't always paying attention to the market, nor are they ready to commit to the discipline of spending days in front of a screen and evenings reviewing market activities. If you are more of a gambler than a trader — and assuming you are not a problem gambler — why not just set aside a portion of your spending money to take to the casino? (Don't gamble more money than you bring.)

Play day-trading video games

Want the excitement of day trading without the risk of losing your money and without putting your job on the line? Then try playing a day-trading video game. The Chicago Board Options Exchange has a free game called OptionQuest on its website that you can use to play at trading. The RapidSP day-trading simulator, which has a free evaluation version and a not-free full version, gives you all the excitement of day trading without risk to your capital and without the sales pitch. It's a low-cost, low-risk way to enjoy the day-trading experience.

Trade in demo accounts

If you're looking for a free way to try day trading in general, you can trade in demo accounts. Many brokerage firms allow prospective customers to start with a demonstration account, both to check out the broker's capabilities and to see whether day trading is right for the customer. Some brokers even run contests in which prospective traders trade paper accounts (that is, not real money) and the winners receive money for a real trading account.

Sign up for a trading contest

Each year, some prominent financial-media companies offer trading contests. People can sign up for them and manage a paper portfolio (investing or day trading), and the participant with the greatest return wins a cash prize. Two popular ones are the CNBC Million Dollar Portfolio Challenge and the Investopedia Stock Simulator.

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