I genuinely think trading as a business is one of the best businesses there is. But before I wax lyrical about all the reasons why you should learn to trade for a living, let me first talk about the downsides – because there are a number of them.
As you embark on your trading journey you need to seriously ask yourself is trading the type of business you would enjoy?
Trading is a waiting game
Trading as a business means sitting around and doing as little as possible.
I’m deadly serious.
It’s really about just waiting for the right opportunity.
That is hard for most.
We’re taught in life that we shouldn’t be lazy.
Some of us have a ‘protestant work ethic’. Others feel guilty about doing little, but reaping a reward.
Newcomers cover all this up by day trading, scalping or analysing thirty markets each day.
But more trades does not equate to more success.
For those who have succeeded in other careers or businesses, they find the fact they can’t impose their will on the market a hard lesson indeed.
Trading has more in common with farming, or fishing than ‘building a business’.
Trading is a lonely business
No one gives a damn that you’re long soya beans or pork bellies.
Conversations with your mates at the local pub, get boring real quick when markets are discussed.
You’ll be called a gambler – and no amount of explaining risk and reward will change their opinion.
When you have losses, there is no one’s shoulder to cry on.
Just soak it up and move on.
Worst still, your partner will most likely disapprove – and will ask you countless times why not just get a job as a stock broker?
There is no structured learning
Its not like you can get a university degree in trading.
Finance, stats, or economics may help to some extent but they are all very cerebral.
It’s a rare economist that makes a good trader.
Understanding some psychology may help as might learning some Python or VBA.
But you’ll learn more from a year on a demo account, than what any of these can teach you of trading.
There is simply no structured learning program – save the one you develop for yourself.
Too often learning is through trial and error, the biggest killer of trading accounts there is.
Total freedom can work against you
The freedom sounds like heaven but it can be hell.
There is no one holding you back from being your own worst enemy.
You’re not accountable to anyone but you!
For some this can be a problem.
You can literally trade anything, anyway, and any time – no one is going to stop you, especially your broker.
You won’t become a millionaire overnight
In this day and age, it’s entirely possible to go viral with a product or service, and next to no time a million or so is in your bank account.
When trading you’ll never compete with the internet marketers of this world, and their potential speed of capital accumulation.
Without taking excessive risk, of course.
You can scale up contracts, but doing this in a safe way requires compounding which takes time.
Just think you never have to write sales copy, develop email lists or use auto responders.
There’s no knocking door to door, or cold calling over the telephone.
I’ve done both – and believe me the rejection sucks – for me much worse than any losing trade.
With no need to tout for business there are other benefits too – no spending money on marketing or advertising, and you don’t even need a website!
Very little capital outlay
No stock to buy, no rent to pay, no business insurance.
The only thing you’re paying is a small interest charge when you go long. And the bid and ask when you close a position.
There’s a margin deposit – but that’s redeemable after the trade.
Now tell me how many businesses are like that?
There is also very little needed in the way of equipment, save your desktop PC.
You can even trade from your mobile if you have to.
Not reliant on the economy
Actually, this isn’t strictly true.
In a booming economy, your trading could thrive. In a faltering economy, it may thrive also.
Your biggest fear is markets don’t go anywhere.
But with so many to choose from, there is usually at least one doing something.
It’s not easy running a business with employees these days, and can work out expensive.
Employees often have more rights than the owner, despite the owner putting up all the money and taking all the risk.
Many entrepreneurs are completely turned off by the whole rigmarole of having staff.
Not to mention the headaches of finding the right ones and the training potentially involved.
Is it even worth it?
You have none of these headaches with trading.
Just you and the market – it is one of the most liberating feelings in the world.
I think the whole trading from a tropical beach paradise thing has been sold to death – but if that’s what floats your boat then great.
On a slightly more mundane level, it’s easy to travel the world whilst monitoring your trading positions.
When you’ve spent as much time in airport lounges as me, looking at the markets can be a welcome relief.
Doesn’t take much time
Trading allows you to set your own schedule.
If you’re happy sat at your terminal all day that’s fine.
But it’s far from essential.
If you want to take a more laid back approach, that’s fine too.
I’m a simple pattern trader, and I really don’t need to be that involved in the course of a day.
Scaling up is physically easy
Notice I said physically?
It takes no more effort placing an order for one contract than it does ten.
The mental ramifications are another story, but physically it’s the same. You don’t need to commit any more time to make the money.
Not all self-employed can boast of that.
Return on risk
Using leverage, return on risk per trade, or return on capital employed can be huge.
I’m talking 400%, 500% even 800% on the risk you took.
In many businesses, this type of return is unheard of.
I used to work in the restaurant industry – the costs are huge and that’s before a single customer walks through the door.
I think the only businesses that can compete with this type of return are those in the online world.
Or, illegal businesses – which are probably not a good idea.
There are many good reasons why you should choose trading as a business.
But…trading is not just finding a strategy and making money. It doesn’t work that way folks, something many beginners find out the hard way.
Trading is first and foremost a mental pursuit, then a money management pursuit and finally a market timing one.
Some traders debate this order.
But IMO it’s possible to be profitable with a poor trading system, but it isn’t possible to make money with poor trading psychology or sub-par money management.