November 29, 2011 | In: General
Do You Need a License to Trade Online?
Usually, whenever I talk to someone (who doesn’t trade stocks and who hasn’t traded stocks in his life) and he discovers that I trade stocks, he expresses to me that he thinks that stock trading is fun (well, it is fun, but not if you’re losing money) and that he always wanted to be a stock trader. So we discuss stock trading in general, and then he asks me how do I trade stocks, and I answer that I trade stocks online, and then asks me this question: “Do I need a license to trade stocks online?”
It’s amazing how many people have asked me this question so far, but it seems that many (yes many) potential investors out there are reluctant to enter the exciting world of stock trading because they think that stock trading (online) requires a license. So, let me answer this in a very short and sweet way: No, you don’t need a license to trade online.
Now let’s examine why some people think that they need a license…
Apparently, most people see stock trading from the perspective of “Wall Street” (the movie) and they think that to trade stocks they need to wear a badge, hold some papers and yell at each other, and that they must be on the trading floor. Now when they know that nowadays one can trade stocks online, they think that the person must have a license in order to do so, because of all the formalities they saw in the movie. Now, what they don’t know is that the movie is about stock brokers, and stock brokers need to be licensed. Stock brokers invest money for investors (such as yourself) in the stock market, and they recommend buying or selling certain stocks. A stock trader is different than a stock broker, and people who trade online are stock traders. Stock traders don’t need a license.
But what if you’re trading with millions of dollars, do you still need a license?
The answer is, again, no. Even if you’re trading with billions of dollars, and even if you’re doing thousands of trades per day, and as long as you’re doing the trading for yourself and not (officially) for other people, you don’t need a license to trade online.
But shouldn’t the regulator require stock traders to earn a license?
The answer to this question is highly subjective… If you want my opinion, I think the market is already overly regulated and it doesn’t need more regulations. Stock traders are people who use their money to trade stocks and who are taking all the risk themselves. On the other hand, one can think that some stock traders can be very abusive of the system (and thus stock traders need to be licensed), but again, that abuse is handled by different regulations and has nothing to do with whether the stock trader has a license or not.
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