April 29, 2010

Trading Basics

Extracted from the book: Trading in a Nutshell, Stuart McPhee

Trading can be a very exciting and worthwhile endeavour and there are several attractions for most people (not including 'making money' which is obvious).

Some of the advantages of trading include:

  • Self employed – you are your own boss
  • Geographical freedom – technological advances are making this easier every day
  • Minimal capital outlay – compare this with purchasing a franchise or establishing a new retail store in your nearest shopping complex.
  • Unlimited potential for profit – financial freedom is what most traders aim for
  • Flexibility with time – you choose when you trade and when you don’t
  • Almost anyone can do it – if you are old enough (usually 18 or 21), you can open a trading account and begin

There are of course some disadvantages which include:

  • No guaranteed success – many people don’t make money trading
  • Can be stressful and emotional – when you are ‘playing’ with your own money, this is almost inevitable
  • Solitary existence – trading can be a very lonely profession
  • Takes time – like many endeavours, consistently profitable trading takes time. I list this as a disadvantage because I believe many newcomers don’t recognise this, nor do they fully appreciate what is required to develop the skills and attributes for successful trading.

There is one thing you need to be aware of however. Trading has a greater potential for reward than investing but with that extra potential for reward is greater risk. Those who trade well have been well educated and prepared. Very seldom does somebody start trading and make money from day one. Often you will hear the saying ‘Only Educated Traders Survive’.

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