Background: Wife and I have a pretty good start to our retirement and the kids' college funds. We are 32 and 30 and have north of $225K in investments NOT including our checking account, unemployment fund, and home equity.

I feel pretty confident about transferring some funds (Around $5K) to an online broker to trade. I stay at home with the kids, so I can monitor the account most of the day. I understand I may lose ALL of it on a bad play. I will not trade on margin. I have lost around $3K on a stock before, so I know what that fees like. I would be primarily doing somewhere between day trading and swing trading.

Talk me out of it.

ETA: This isn't GD, no wife pics.

Two rules you MUST understand first:



1:  The FTC's definition of "pattern day trading".



2:  The 3 day settled funds rule.





The first one is pretty obvious.



The second one needs explaining.



When you sell a stock, bond, or other security,  it takes three business days for the sale to finalize, and at that point the proceeds are considered "settled" funds.



You can't use unsettled funds to fund another stock, bond, or other securities purchase.



So if you sell out something today for 5000 dollars,  you can't touch that 5000 dollars for buying another security for three business days.



If you plan to be active to the point of making trades every day,  you need to fund your trading account with enough money that you will be able

to buy and sell at the level you are comforatable with even though at any given time some of your funds will be unsettled and you can't touch them

without penalty.



You might make 5K back off a sale but if you want to buy another security right away, your account has to have more in it than the 5K you just

made back.   If you're comfortable with making a 5K transaction every day then it follows that you'd want to fund your account with 15K

so you can do a 5K deal every day and never touch unsettled funds.



If you violate the settled funds rule, your account goes on a 45 day cash only basis,  which means no margin trading allowed during this 45 day

period.   Not that you should be trading on margin anyway.    Generally that's not something an individual investor should be doing.





If you are serious about this,  what you will need to be successful is INFORMATION.   There are subscription news feed services aimed specifically

at the active trader.   You will almost certainly want to hook up a second PC which is dedicated exclusively to bringing in the news feeds, and probably

on multiple monitors.    Your main PC will be what you do your trading with.   You will want to invest in a GOOD stock screening program, too.  You will

get some kind of screening program along with most any online trading service subscription,  but it's worth it to upgrade to a good one.



You will HAVE to dedicate hours of your day to your new hobby if you intend to actually make much money.   The mornings are very hot times,

with most of the day's market moves happening before noon.    There's a smaller activity peak in the late afternoon before market closing time.





If you get really serious about this you will want to take some classes aimed at future brokers and traders.    



Learn everything you can.    Some day you might find yourself making great money on straddles on oil futures.   I know somebody who's doing that.

Thanks for the information.

If I understand the basic FTC Pattern Day Trader rules correctly, it says a pattern day trader executes 4 round-trip day trades (buy & sell in the same day) in any consecutive five-day period and they must have at least $25,000 in equity available at all times. Sounds like I would be more of a swing/long term trader.

The 3-day settlement is pretty straightforward to me, its the same thing with some of my Edward Jones accounts.

The funds I have in EJ are all long term, solid companies and mutual funds. This would be a venture on my own with potential consequences known and understood (lose $5000 and my wife leaves me and my kids don't love me and the 5-0 shoots my dog).

Information will be the key. Right now, I look at the finance sections of Google/Yahoo and look up company reports and info sheets.

i would recomment invest vs trade, buy some good individucal company stocks and keep a year or more, or longer, if they run up, cash them out,

its pretty hard to make money day trading, a lot of its driven by emotions, its pretty much just speculation

He already has investments.   He wants to put a fairly small amount of money into active trading for a fun experiment.  And if he does it right,

it WILL be fun.  Maybe even profitable.



Active trading gives greater risks, but also can give greater rewards.   Active trading is a form of gambling that's legal in every state,  but the house odds are NOT rigged against you.
A well informed trader (that means having good LIVE news feeds and monitoring them constantly, and knowing how news affects the price of


various commodities and securities) can outperform ANY long term investor.    But it takes WORK, INFORMATION, and JUDGEMENT.
I did it for a while.   My mistake was going into it with TOO little money.  I WAS profitable, except that my profits were eaten by the commission fees.
My biggest single mistake was not buying Ford stock at 2 bucks a share in the 2008 crash.   But at that time nobody was even sure if Ford was still going


to continue to exist.  
 

Why do you want to do this? Take your money and go to Vegas. Hit up the blackjack table. You will have better odds, will get free drinks, and probably get to see some nice scenery.

With your financial picture losing 5k ain't going to kill you but you may be tempted to add more and then you will screw up big.

I see no real upside to this.

Even if you make a fifty percent gain that is $2500 - big whoop in your world. You worked hard for your money invest it wisely.

In Vegas the odds are always slightly against you and there's no way to predict what will win.



Playing stocks is different.   There are often VERY predictable reactions to any given event.



If war is coming,  buy stock in defense contractors.    If a massive hurricane is heading for the eastern seaboard,

start shorting insurance stock.





If it's an election year,  buy stock in companies that deal in pitchforks, tar, and feathers.
People who are uninformed and play in the stock market ARE gamblers.



People who are WELL informed and play in the stock market are MONEY MAKERS.





The difference is knowledge.   A good trader has access to news that will affect his stocks, and has access to it NOW,

and exploits that knowledge.   It is only by knowing what's going on and how it affects stock prices that you can be

reasonably certain of making some money trading.



No amount of knowledge will change your odds in a casino.



Unless you know HOW a specific game is rigged, that is.

Trading for "a while" doesn't mean you mastered market.  And it's only profit after you pay the commission, so it doesn't sound like you really came out that far ahead.  Thinking about how rich you could have become if you knew then what you know now means nothing.  No disrespect, but that doesn't exactly give you the credentials to tell the OP that trading is as easy as monitoring some news feeds.  At 30 years old with a wife and kids, he should expand his investments.

I never said it was easy.  I did say, and say again, that knowledge is key and that knowledge has to be timely and relevant.



But you could be hooked into every news feed in real time,  have ALL the news you'd ever need, and STILL buy into a stock

that is rapidly falling into the dreaded penny stock zone.    You have to have judgement that turns out to be good,  and have

the timing right.   And even with all that there can still be unknown factors that affect the prices of stocks and securities.





What's really interesting is the effect that automated computer based trading has had on the market.  When you have very

fast, very powerful computers executing hundreds of thousands of trades per second and reacting to prices in milliseconds,

and there are many of those computers doing the same thing at the same time and working against each other,  the market

has become a very dynamic and in some ways very unpredictable one.



Check out the articles on "high frequency trading".   Very interesting and a bit disturbing.



It's possible that computer controlled trading has caused individual brokerage firms to make or lose millions in milliseconds.



In fact, I'm sure it HAS happened.



The more automated high frequency trading systems come online, the more chaotic the results will be.

Well in theory I agree with you but in reality it usually doesn't work that way. Most the things you talk of like wars, storms, etc get instantly priced into the market as there are thousands of people watching the same news. If someone knew how to CONSISTENTLY beat the market they would be the richest person on earth. Sometimes you can win and and other times you lose and yes knowledge does help put the odds in your favor but nothing is for sure. Like I said if it was you would have a printing press for money. Do some research on this and over the long term investing in index funds returns more than active trading does. You can look at some of these high powered hedge funds that have access to more info and resources than us and they might knock it out of the park this year only to have negative returns next year.

About 10-15 years ago I used to try and trade a lot and yes I made some huge gains but I also made some huge losses. The net result was not near as good as I am getting now that I just do index investing.

all true, except a lot of times stocks move in the opposite direction to news, many of the moves are completely random, all the experts can tell you why the market moved in a certain direction AFTER its over but very few can tell you before it happens

its still fun if you can afford to lose, and you may get good, lucky or both

OP: If you are going to try and buy individual stocks with a $5k account that you intend to actively trade, don't bother. Your time could be more productively spent doing something else. As long as you're sticking to straight stocks, the  size of the positions you can take on out of a $5k account will never command large enough profits, net of expenses, to justify the time/risk. The expenses are too great in proportion to your likely gains if you're planning on actively trading it, especially if you plan to diversify your holdings.

For example, let's say you put $1,000 into a straight stock position, and it rises 8% so your position is now worth $1,080.  You made $80 right? Nope. You paid ~$9.99 to get in, and you'll pay ~$9.99 to get out. So net you have a $60 gain before taxes, which for short term trades is taxed at the regular income rate, figure between state and local you're probably looking at least upwards of 30%. So now we're talking ~4% net/net gain, or $40...

What if we add in another $1,000 position you've taken on that subsequently drops 3%? It's now worth $970, and you sell.  Now you've taken a $30 loss and paid $20 in commissions for the right to do so... Sure, you can offset your losses against your gains for tax purposes, but even then, you've made $10 before taxes, so probably $7 after taxes. You know wins? Your broker, who has charged you ~$40 for two trades that have collectively made you $7 take home. The more you diversify your holdings on your $5k account the more your broker will take from you in the form of commissions, even if it is only $7-$10, because it is each way in/out of each trade. Five holdings, opened and closed will net the broker $100 in fees off of your $5k account, that's 2% of your stack right off the top regardless of the outcome of your positions! And five holdings is a yawn inducing number, the damage gets worse the more active you get at that size of an account...

If you really want to actively trade a $5k account you have only two options; fuck diversification and really only ever have two or three holdings so that the juice is worth the squeeze after trading expenses, or start trading options.  They both have a lot of risks, but it's the only way to get the asymmetry you need in order to make money given the size of your $5k account relative to fees.  If you're curious about options trading I can elaborate on my experience, which has been very positive.

Oh, and you would be sorely mistaken if you think you can watch live TV and trade off of it and make money doing it... You have to be out in front of others, and bet in the right direction in order to make money. Don't ever make the mistake of thinking that investing/trading isn't betting, if there is a risk involved it's betting, and there is always risk.