In the old days, people could only buy and sell stocks through auctions and live bidding. But in this digital era, you can trade stocks by tapping just a few buttons on your computer or smartphone.
If you’re looking to build a side hustle or make extra money from home, you must have stumbled upon the idea of online stock trading.
But if you have a day job, can you do this on the side? Can you treat stock trading as a hobby?
Stock trading is a business. You can’t treat it as a hobby if you want to make significant money in the long run.
This article will explain why you should look at stock trading as a business and not a hobby.
7 Reasons Why Stock Trading Is a Business
With access to the internet, computer, and/or smartphone, anyone can start trading stocks anywhere. But there are a few reasons why this field is a business. For instance:
You Need Discipline in Stock Trading
Hobbies are activities that you do leisurely in your free time. Stock trading is something that takes place during specific times, generally.
It is difficult to do it on a whim or whenever you are in the mood because the markets may not be open or at a profitable point. Choosing random times to trade won’t prove profitable in the long run.
You need to devote time to studying the market the day before and get up early when the market opens. Hence, discipline is the key to profit from this field.
The stock market opens like any regular business. Except for public and festive holidays and weekends, the Nasdaq Stock Market and New York Stock Exchange operate daily from 9:30 a.m. to 4 p.m. During this period, the market activities are usually at the highest.
On the other hand, trading also occurs before and after the market opens. However, this period isn’t as active as during the day.
You Need to Choose a Trading Style That Suits You
Stock trading isn’t just about buying and selling shares. You need to have a trading plan and stick to one style that suits you.
There are numerous strategies recommended by trading gurus and stock market experts. Some strategies may or may not appeal to your daily schedules.
For instance, day traders buy and sell shares in a few minutes or hours during the day, whereas swing traders usually hold positions overnight or for a couple of days.
Meanwhile, position traders will have one or a few open positions for a long-term hold. Although you can opt to be a position trader, you still need to learn the ins and outs of the market.
Either way, there is some serious learning you need to do no matter which style you choose.
You Need to Invest a Large Sum of Money
To make worthwhile money and be consistently profitable in the market, you need to invest a large sum of money.
You should also protect your hard-earned capital if you want to stay in this game for a long time.
Companies’ share prices fluctuate every second when the market is active. For instance, Apple Inc’s share price can cost up to $185 per share, whereas Amazon’s share price costs $130 per share.
So, you need more than $1,000 to buy 10 shares and make a little profit. The more shares you buy, the higher your profit yield will be.
But you can also lose more than you can afford to if you don’t follow your trading plan religiously.
You Need a Trading Plan
Since trading is more like a business, you must have a trading plan before executing your orders. In brief, you are the sole owner of your trading business.
You bear all the risks and losses. You decide whether certain stocks are worth buying or selling.
However, you also stand to gain large profits if you follow your plan accordingly. You rarely see a hobby that needs planning and thorough decision-making.
Hobbies Can Cost Money, But Usually Less Than Trading
The most important fact you must accept in stock trading is that you will have losing streaks for days or weeks.
Some hobbies are cost-heavy in the beginning, such as for equipment acquisition, but they are often less than a stock trading investment.
In addition, the financial risk that comes with stock trading can scare most people away from trying. There are also times when you shouldn’t trade but stick with one position for a long time.
Trading stocks can be boring and costly to engage in. Meanwhile, hobbies should be fun and not so costly to indulge in.
You Will Compete With Professional Traders
There are thousands of traders and market participants with different amounts of capital and strategies.
And most regular traders will compete with professional traders and hedge fund managers with more industry experience.
These professionals can also access the latest software and advanced algorithmic trading systems. They are completely in this game to make money and stay profitable consistently.
If you treat stock trading as a hobby, you will most likely lose to all the professional traders. To survive in this competitive industry, you need to work hard to win.
Stock Trading Is a Lonely Endeavour
You can do most hobbies with family and friends because they are inexpensive and enjoyable. But with stock trading, you will spend most of your time doing the fundamental or technical analysis before the market opens.
Although there are trading groups or communities that you can join for help and learning support, the final decision before you tap that ‘buy’ or ‘sell’ button is solely yours.
Final Thoughts
If you want to be a profitable stock trader, you can’t treat it as a hobby. And if you still want to do stock trading as a hobby, you should know the risks beforehand.
There’s no harm in giving it a try. You may be one of the lucky few who can trade stocks in your free time and profit from this challenging industry!
Resources
- https://stockstotrade.com/4-reasons-day-trading-not-make-good-hobby/
- https://www.streetdirectory.com/travel_guide/144694/trading/treating_day_trading_like_a_hobby_versus_a_business.html
- https://bullsonwallstreet.com/trading-as-a-profession/
- https://therobusttrader.com/trading-as-a-hobby-can-you-make-money-is-trading-a-good-hobby/
- https://www.investopedia.com/articles/trading/10/top-ten-rules-for-trading.asp
- https://medium.com/@DavidSchawel/investing-as-a-hobby-8d048d5d98bd
- https://www.nasdaq.com/market-activity/stocks/screener
