In order to learn how to be a hedge fund trader – or perhaps begin day trading the stock market like one – a person needs to understand exactly what is hedging, why it works in the marketplace, and what is needed to get into this extremely lucrative business. The vast majority of people interested in this field simply will never get off the ground, because the obstacles to success are substantial and lack of experience in the field begets lack of success. Let’s look at three potential paths to get there from ground zero.
Path 1: Get in on the Ground at a Presently Existing Firm
One of the most important keys to success in how to be a hedge fund trader is simply exposure. Getting on the inside of an existing firm exposes an inexperienced person to all the important tools, jargon, strategies, and key market players and metrics which make the industry run. A person with insider knowledge of the field / firm has a much greater chance of landing a job running a fund than someone outside the firm or outside the industry. This may not be the quickest path to the end goal, but it is the most likely path to result in success.
Path 2: Become a Hedge Fund Trader by Starting Your Own Firm
This option is much more difficult for the industry outsider because not only is substantial key experience missing but also the missing is the all important backing capital. On the other hand if you have a rich uncle or other patron who fundamentally believes in your ability to make good market decisions (a.k.a. you have a track record of making money in the stock market on your own) then you may have the needed deep-pockets to lauch your own firm. State regulations vary but you should expect you’re going to have to jump through a number of hurdles to put up your own shingle. It certainly is not impossible (and can be exceedingly profitable if you succeed), but be prepared to go through a considerable amount of personal background scrutiny before getting approval. Oh, and it is likely you will have to pass a number of securities-related exams in order to take in client money. Some states also do not allow you to sit for an exam unless you work for a firm already – a handy catch-22 for industry insiders to prevent competition.
Path 3: Develop Your Own Trading Algos for Personal Use to Get Discovered
If you don’t have insider access (as in Path 1), or deep-pockets (as in Path 2), the only other plausible way I can think of as to how to be a hedge fund trader is to become your own portfolio manager, develop your own trading algos, and create a personal track record of your results in your own portfolio. This requires at least enough capital to make your own transactions (or be willing to create model portfolios). The idea is then to develop your own macro trading strategies and distribute the results free for others to see. Learning how to create and use algorithmic trading software is one of the necessary skills for success. It is also worth noting that many others have taken this path – most famously the Gardner Brothers who started the Motley Fool. Creating exposure this way will not likely make you any money per-se but it may get you the exposure you need to crack through into Path 1 or Path 2 above.