- At first glance, figuring out what day trading firms actually do can be a bit of a challenge. Many of these firms are almost informal in terms of their business model. Individual traders are often kept on their own, with the firm taking only a percentage of the profits. Others are more structured, paying traders a salary and drawing capital from a common pool. It's also an industry rife with scams, failing businesses and low regulation.
- Day trading is relatively new as an industry, as it relies on instant execution of trades that simply wasn't possible until the advent of online trading platforms. The majority of day traders are independent - working from home or their personal office. Day trading firms often retain much of the individuality that characterizes the field as a whole. Some firms are more like educational institutions than they are businesses - they make their money from providing a structured learning environment for day traders.
- If a day trading firm seems to be hiring people with very little vetting or only a perfunctory trading course primarily communicated through recordings or a small collection of books, it's not likely that it is a very reputable business. To be consistently successful as a day trader, one needs to be well appraised of complex hedging strategies along with trading multiple instruments across many market sectors. Successful day trading is not like gambling. It's a learned, complicated skill that requires a great deal of knowledge. Reputable firms often have individual day traders that focus on particular market sectors trading using a concrete system.
- Day trading is often portrayed as a tactic for getting rich rapidly using margin trading techniques. While it is certainly possible to make massive amounts of money in a short period of time day trading, the most successful firms counsel their employees to hedge all of their trades well so that they can maximize their chances of a small but consistent daily profit. Appreciated over years of trading, this technique ends up performing far better than any series of high-risk leveraged trades.
- Day trading firms are subject to unusually high amounts of regulatory scrutiny. If money from outside investors is being brought in to the firm, all the employed traders need to have the appropriate stock broker licenses or they risk incurring fines and asset seizures from the Securities and Exchange Commission. As day traders in firms frequently need to pay high fees to their firms for training, equipment and commissions, it can put undue amounts of pressure on employees to make as much money as possible every day to cover their costs. The use of margin in turn makes it very easy to fall into debt.
