Trading from home and earning a lucrative salary doing so sounds like the ideal goal for anyone who has a passion for the financial markets. Nevertheless, unless you have a lot of start-up capital to work with, and plenty of talent to go along with it, it’s a bit of a lofty goal at the same time.
Trading for a career is difficult as it is. And being undercapitalized makes matters even more difficult, due to the fact that even if you’re trading well, you still might not be making enough money to cover your living expenses (and then some) in order to turn it into a career.
For example, if you make 10 percent a year trading (which is good), but that’s off $100,000 you have saved up, that’s only $10,000 per year. In developed countries, that’ll cover some living expenses but not all.
With that said, if your ultimate goal is to trade for a living, trading for an established financial firm is generally the most feasible option. Typically you will make a base salary plus commissions based upon your trading performance.
With any form of self-employment, education is typically secondary to experience, commitment, and enthusiasm for the chosen field.
However, when it comes to landing employment in a competitive field, that means it will typically necessitate certain educational credentials in order to get your foot in the door and land one of these jobs.
Over 30 ago, it was common for traders to not have any formal education beyond a high school diploma. Attending college could potentially help in some form in getting hired, especially if they ever wished to change professions as seamlessly as possible.
But for trading’s sake, there was genuinely little that could be learned in a formalized educational setting that would help them acquire the particular skill set needed to trade well.
They typically worked their way up over the years from assistantships out of high school to floor trading at a stock or commodities exchange as they gained experience.
These days, however, with the advent of electronic trading, the markets have become more competitive and difficult to master as a result.
Accordingly, trading firms are increasingly upping the ante when it comes to the required skills, educational credentials, and demonstrated track record of achievement necessary to land a position whether it’s a bank, fund, or other type of trading firm.
Best Degrees for Day Traders
Roughly going in order from most desired on down, the following are the most common and sought after college majors for aspiring traders and generally the best degrees for day traders:
A finance degree is hard to attain at some institutions, as there are usually strict GPA requirements. Additionally, not all universities offer one. Finance majors will acquire familiarity with and exposure to many of the topics and concepts related to the various types of tasks they might need to complete at financial institutions.
Students will normally graduate with skills in accounting and financial statement analysis, corporate finance, and a strong understanding of securities and derivatives. Moreover, it has a narrower focus than business or economics.
And because of its general degree of difficulty and high quantitative focus, it’s a highly in-demand degree among banks and financial institutions of all kinds.
Business administration has a broader focus than finance, but these students will still likely come out with at least a basic knowledge of the rudimentary aspects of financial markets and trading.
Business will prepare oneself well for trading, in general, at least when it comes to equities. Many business programs will offer courses in accounting, finance, marketing, and economics – all of which are helpful for those looking to trade financial markets.
Business students are required to understand cash flows, valuation, financial statements, and market competition, and a degree in business will help in these aspects.
The best programs will offer courses in financial accounting, investment analysis, and marketing.
In addition, students will gain practical experience through internships at financial institutions or brokerage firms. This type of program can also be a great foundation for those who wish to pursue a career in finance or investment banking.
Students who graduate with a business degree typically have a well-rounded understanding of how businesses operate and how to make them successful. Some may begin to specialize in certain sectors coming out of college in their first job (e.g., investment banking, consulting). This knowledge can be beneficial when eventually trading securities and other investment products.
Many business majors go on to start their own businesses after graduation or work in various areas of finance such as banking, consulting, and private equity.
When it comes to most financial careers, the common degree preferences include finance, business, and economics (and sometimes accounting when applicable).
Certain forms of trading may be best suited to those with a strong economics background. Those who trade currencies, bonds, and interest rates – because of their macro focus – and even commodities, might favor those with economics training.
The foreign exchange (forex) and bonds markets are often driven by economic data more so than equities (stocks), which are strongly affected by company performance and narratives.
Commodities are driven by supply-and-demand and geopolitical forces, which are also common points of study in an economics curriculum.
A degree in economics can provide the skills needed to analyze financial data and understand how it impacts the markets.
In addition, economics majors learn how to think critically and problem solve, which are essential skills for traders. Many economics programs also offer coursework in financial accounting and investment analysis.
An economics degree provides students with a strong background in micro and macroeconomic theory. This is important for traders because it allows them to understand how global economic factors affect the markets.
Based on their study of microeconomics, students will be able to interpret market data more accurately and make decisions geared toward which securities to buy or sell.
Mathematics and Statistics
Degrees related to math are often prized by traders because they can provide a strong basis for logical and rational thinking, as well as the ability to recognize patterns that lead to profitable trades.
These programs are typically designed to teach students how to apply mathematical tools to solve complex problems in finance. Some also offer coursework in areas like data mining, financial engineering, computational finance, and topics related to risk management.
More and more individuals with strong mathematics and statistics backgrounds are finding careers in the trading industry due to the increasing quantitative- and data-related focus that’s been placed into the financial markets.
Moreover, markets are traded less on discretionary buy and sell factors and more on quant and systematic factors.
As a result, quantitative and data interpretation skills are in high demand. These individuals are also looked at by firms as those who are some of the most teachable and of the highest potential.
Even without a finance or economics background, the mathematically inclined often learn quickly due to their background and aptitude.
For quantitative and algorithmic trading, having very strong mathematical aptitudes is essential, particularly in domains such as probability theory.
With the increasing focus on automated trading, there’s been an increased demand for experts in financial mathematics (especially statistics) over the past decade.
An ideal degree would be one with a strong emphasis on markets trends (such as modern portfolio theory), while some degrees focus on more technical aspects like the ability to perform ad hoc analyses like Monte Carlo simulations and backgrounds in branches of mathematics like stochastic calculus.
Computer science is another strong choice for those aspiring to enter quantitative and algorithmic trading.
The coding experience that comes with it teaches the foundation behind reading and designing modern programs, although these are often developed by those with advanced degrees in the field (and is a lucrative, six-figure profession in itself).
While computer science majors may not go as in-depth in their quantitative studies as mathematics or statistics degree holders, it’s still one of the most mathematically and logically intensive majors offered at most universities.
The best degrees will focus on programming and coding over traditional branches of software development such as networking and databases.
Students should also expect an emphasis on internet-based programming languages such as Java and C++, which are widely used for financial applications and web services.
In addition to providing technical skills relevant to traders, computer science programs tend to be rigorous and fast-paced – which makes them easier than other degrees for students with limited free time (such as those looking to trade full-time). Students may also learn best practices of coding and programming that may be applied to other areas outside of writing trading algorithms.
Engineering or Physics
Again, the emphasis here is on the quantitative skills, analytical thinking, and problem-solving competencies that these professions bring.
Although a physics major may not necessarily know much about finance, the actual math involved is really quite similar and often pursued at a higher level than traditional finance programs.
And with quantitative and algorithmic trading – where those with an engineering or physics background might focus – you’re often ignoring the fundamentals of an asset that are typically analyzed and of interest for those with a finance, business, or economics background. The focus is more on data inputs and discerning the general trends.
To best prepare for a trading career, having a degree can be helpful, especially if wanting to trade for a formal institution, where it’s often a requirement.
However, this doesn’t mean that those with non-college or untraditional backgrounds can’t succeed as traders. Many successful traders come from non-technical disciplines and have gone through intensive training programs at their firms.
It’s good to be aware of what the “ideal” degrees might be, but the best path forward would be to focus on your strengths and interests, even if they don’t fall into any of these categories.
That said, many day traders quickly learn that they enjoy analyzing data – which tends to lead them towards math or computer science coursework later on. And because successful day trading requires a significant amount of time and effort, it’s best to get started sooner rather than later.
For those interested in formal education, pursuing a degree in mathematics, statistics, computer science, engineering, or physics can provide the quantitative skills and analytical thinking necessary for a successful career in day trading.
Many of these degree programs offer a strong foundation in the math governing financial theory and market analysis, while some also teaching students how to program and code. This experience can be invaluable for developing trading algorithms and strategies.
It is certainly worth noting that the type of educational background and skill set necessary is highly contingent on the type of trading.
For quantitative and algorithmic trading, a math, engineering, or physics major could have a leg up over other degree holders. On the other hand, an economics or finance major might be better suited to trading predicated on the fundamentals of an asset.
Regardless, the reality is that traders come from a variety of academic disciplines and it’s not essential to have a degree in finance or necessarily any of the ones listed above to be prepared for a trading career. What you learn in school tends to not adequately prepare students for a trading career in itself. Many academic backgrounds can be considered perfectly valid.
Even though trading is increasingly becoming a profession where math and other technical skills are in high demand, a history or English major would not necessarily be disqualified. Even an international relations or government major could bring their own skills and interests to the table.
Nobody has to be strong everywhere, especially when you’re part of a mid-sized or large company. This is why companies often pair diverse skill sets to form teams that involve various complementary skills, abilities, and ways of thinking.
Sales trading, for example, would be fine with most degrees. But coming in with an open mind and having strong logic and problem-solving skills will go a long way toward facilitating entry and success in a professional trading career.