The Business Of Trading – Part 1

The Business of Trading

Mark Thomas — Trade On Track

Looking to make money from forex trading? That’s the aim for most of us and at first, it looks like such an easy thing to do! It turns out to be not so simple though, and I believe many things need to be addressed in a business-like manner in order to be a truly successful trader. To make money in any business requires skills, experience, knowledge, dedication and hard work – the business of trading is no different.

What it means to run trading as a business
There are a few different ways to make a business out of trading. If you’re good enough, you can trade other people’s money and take a commission on profits. This is called being a professional account or money manager. You can do the same type of thing by being employed by a money managing firm, where you’re managing the firm’s money, not the client’s money directly. This is called a proprietary (or prop) trader. Another way to make a business out of forex trading is to teach it or provide other resources or tools that can help traders. This can work if your forte is actually something other than trading, but your trading knowledge and skills complement the business you are in.

However, in this article, we’ll just be discussing personal trading as a business. That is, trading and managing your own money for the purpose of making a profit.

As with any business, there are advantages and disadvantages that need to be identified and weighed up before jumping in head first. Advantages include:

  • Being your own boss. The only person you really have to answer to is yourself. You’re calling the shots and it’s up to you how you run your business.
  • Unlimited earnings potential. If you’re good enough and disciplined enough, there is really no limit to the amount of income you can earn from trading. If you re-invest all or part of your profits, the cumulative effect comes into play and your account has the ability to keep on growing.
  • It’s challenging and rewarding. I find these to be advantages because I’m always learning more and challenging myself. From this, I am also growing – as a trader and personally. Trading can teach you a lot about yourself, exposing strengths and weaknesses. Many of the attributes required in being successful at trading are the same attributes required in being successful at anything.

Disadvantages in running a trading business include:

  • It can be a solitary occupation. Most of your trading hours will probably be done on your own. You may be in contact with other traders through forums, email or sites like currensee.com – but in the end, you’re probably in your home office on your own with little social interaction. Some of us actually consider this to be an advantage, but it’s definitely something that needs to be contemplated, even for the most introverted among us.
  • Success may fluctuate. Being an entrepreneur and running any type of business means you can have wild swings in risks and rewards. If you’re working for someone else, you usually have job security – you know what your wage is going to be each month and you have a good idea of what it will be next year and the year after that. In trading, it can take a lot of planning and correct execution to attain that feeling of security. You may have some very good months followed by a losing month or two. You must plan to balance this out over time so that your overall trading is profitable and you have the confidence to continue.
  • Your financial rewards are dependent on how much you have to invest. With a regular job you can hit the ground running and earn a decent income almost immediately. With trading, you’re normally going to need to build up to a good-sized trading account in order to make a business out of it.

Business Plan
A plan for your trading business is essential, but often overlooked or discarded as not necessary. I’ve often heard the phrase: “if you fail to plan, you plan to fail” and it is true in trading, as with any business.

I just received an email last night written by Brian Tracy, detailing the importance of goal setting. After consulting to more than 1,000 companies and teaching over 4 million people how to set and achieve goals, he says that the one easily-identifiable trait among the supremely successful people he has met, is that they know how to set goals and work hard to achieve them.

Some things you might consider including in your trading goals and your trading business plan are:

  • How much you want to make from your trading. Consider how much each month you would like to draw as an income and also how much you’d like to make next year and in 5 years time. Try to be as realistic as possible, but also be conscious about setting your goals high. Get as much information as you can first. Buy books about traders who are making a living from trading, read about them and learn from them.
  • How to do it, how to meet your financial trading goals. It’s fine to say “I want to make 10% income per month”, but how exactly are you going to do it? What strategies are you going to use, how much time are you going to spend each day trading, what times of the day will you trade? You may not know all those details yet, so if you don’t – plan instead to learn and practice the skills required so that you get to the point where you know how you’ll get there.
  • Goal setting and planning is an evolving process. Don’t worry if you don’t have all the answers yet. The important thing is to set your goals, write down what you can about the achievement of the goal, then make sure you start taking some sort of action immediately. Once you start taking action, regularly review your goals and make sure you’re moving in the right direction. As you learn more and get in the habit of taking action and moving toward your goals, you’ll be able to fill in more of the detail and it will all tend to fall into place.

I could go on and on about planning and goal setting – they are huge topics in themselves, but we’ll leave that for another day. In the next follow-up article, we’ll talk about other topics related to your trading business including: equipment, borrowing & investments, dedication and accountability.

Go to Part 2

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