| When I tell people I am a self employed futures trader, | | | | document warning that you should only trade with |
| they often ask "What would I need to do to get into | | | | money you can afford to lose. If you have no prior |
| that?" They are attracted by the obvious life style | | | | experience, you had better take that warning seriously! |
| benefits enjoyed by a successful day trader, but they | | | | Another way of gaining experience is through |
| have very little idea of what is involved. Here are the | | | | education. There are many, many organisations |
| five most important things an aspiring trader must | | | | offering trading training programmes, many excellent |
| consider, and make decisions about, before leaping into | | | | trading books, and a wealth of information on the |
| the lions den. | | | | Internet for a diligent researcher. Just make sure that |
| | | | the information, wherever you find it, is coming from a |
| 1. Capital: You can only trade for a living if you have | | | | reliable source. Every good trader I have ever known |
| capital to trade with. That begs the question of how | | | | realizes the value of education. It is only sensible to |
| much capital is required? Before addressing that | | | | learn as much as you can about your business. Yet |
| question, let me ask you what return on capital you | | | | another way of gaining experience is to purchase a |
| would expect from any other business you invested | | | | successful trading system. This is similar to the |
| in? How much return would you expect from a fast | | | | concept of buying a franchise in a conventional |
| food business, or a taxi cab, or an engineering | | | | business. You may not know much about the fast |
| workshop? Then ask yourself what sort of returns the | | | | food business, but buy a good franchise and you get a |
| really smart money managers on Wall Street are | | | | well designed, well supported business plan based on |
| producing in the various investment vehicles on offer. | | | | years of good experience put in by the franchise |
| That is the reality check! You would be amazed how | | | | developer. But there are good franchises and bad |
| many people think they can put in a couple of | | | | franchises, and there are good and bad trading |
| thousand dollars trading capital, and immediately start | | | | systems in the market place. Be sure to seek proof |
| earning a 6 figure income. It could happen, but it is not | | | | that any trading system you buy is truly performing as |
| likely (to put it mildly!). When I work with clients, we aim | | | | claimed. In particular, make sure that it is not just |
| at a return of 10% per month, which I regard as a real | | | | advertising results based on hypothetical historical |
| "stretch" target. That is a clue to the trading capital you | | | | trades. (It is the easiest thing in the world to construct a |
| need if you are going to live off your trading profits. If | | | | system that has spectacular results when you are |
| you need $6K per month to cover your living | | | | working with historic data. After all, you already know |
| expenses, I recommend a trading capital of at least | | | | what happened!) |
| $60K. You also need to understand that trading | | | | 4. A Good Broker: Your broker provides your window |
| income is "lumpy". You might get a terrible month | | | | into the market, and you need to make sure you have |
| followed by a couple of great months. To be on the | | | | the best there is. A search engine will quickly throw up |
| safe side, it really helps to have enough money in the | | | | scores of brokers and it can be hard for a novice to |
| bank to ride through one or two low income months | | | | decide which one to go with. One very important |
| without dipping into your trading capital. If you do not | | | | criterion is cost, because like any other business, cost |
| have this much capital, you can still trade - but you | | | | control is a vital element of trading success. |
| should keep your primary job until you build your capital | | | | (Particularly day trading, where you have a higher |
| nest egg. | | | | volume of trades than longer term traders.) You want |
| 2. Trading System: Trading is a business. When you | | | | the transaction fees for buying and selling futures |
| operate a business, you need a business plan which | | | | contracts in your preferred market to be as low as |
| shows clearly where your profits are coming from. For | | | | possible. But that is not the entire picture, because |
| traders this is their trading plan or trading system. It | | | | some brokers supply free what others charge for. |
| clearly lays out all the elements of your trading activity | | | | Check for platform costs, data costs, charting |
| - when you will enter a trade, how large a position you | | | | packages, withdrawal and deposit fees etc. You also |
| will take, how you will react to various scenarios as | | | | have to consider functionality. What markets and what |
| they unfold during the trade, and precisely when, and | | | | kinds of trading instruments are supported? What |
| under what circumstances, you intend to close the | | | | order types are supported? Are orders transmitted |
| trade. | | | | immediately to the market electronically, or is their a |
| 3. Experience, or the Benefit of Experience: When you | | | | delay caused by manual intervention? Is it |
| start a business, any business, you need to have some | | | | cumbersome and slow to enter orders, or is there a |
| special expertise in your field of operation. This | | | | slick single-click order entry process? Every minute |
| certainly applies to trading, as your competitors are | | | | you put into researching your choice of broker is time |
| very bright people, hand picked and carefully trained by | | | | well spent! |
| some of the most prestigious financial institutions in the | | | | 5. Infrastructure: Traders are fortunate because their |
| world. They have the further advantage of not having | | | | necessary business infrastructure is not expensive. |
| to trade their own capital, which reduces mental stress. | | | | You will almost certainly be trading over the Internet, so |
| It is the height of arrogance to think that just because | | | | you need a reliable computer and Internet connection. |
| you are a successful lawyer, or airline pilot, or a | | | | Often trading platforms are quite "busy" with a number |
| success in any other walk of life, you will be able to | | | | of windows available, so a large screen is good. |
| start trading and immediately be better than these | | | | However, there is no requirement for high end |
| people. And yet, it happens all the time... So, how do | | | | processors or massive storage devices. Backups are |
| you overcome your lack of experience? Well, there is | | | | handy. I normally trade on my desktop machine, but |
| always the school of hard knocks. You can just start | | | | can switch to the laptop if I need to. I have a very |
| and learn as you go, but if you do that be prepared to | | | | reliable broadband ADSL Internet connection, but I |
| spend quite a lot of money to gain your experience. | | | | have a backup dial-up service just in case... |
| When you sign up with a futures broker you will sign a | | | | |