When you think of trading, whether it’s forex, futures, stocks, bonds, or anything else, you won’t necessarily think of it in terms of running a business. However, both enterprises are actually very similar, and understanding this can help you when it comes to your trades.
After all, if you treat your trading as a business, the emotional side of things can be removed, and that immediately makes you better at making the right choices. That’s just one example; read on to find out more.
Photo by Andreas Klassen on Unsplash
The Business Plan
If you’re intending to run a successful business, you need to have a good business plan in place. This is one of the fundamentals of any business, and although it will take you time and effort to work out, once it is complete you’ll have an entire roadmap to take you from the launch to whatever your end goal might be.
Your business plan will enable you to make good decisions because you’ll always know which direction you’re meant to be going in. Plus, it will help you feel more confident because you know you have something to aim for.
Trading is just the same. If you have a trading plan in place, making the right choices, even if that means not trading for a while because there is nothing suitable out there for you and your strategy, is much easier, and you’ll be removing at least some of the element of chance from the situation.
The Calculated Risks
When you run a business and you want to see it grow there is nothing for it but to take risks. However, if you want to be successful, those risks need to be calculated ones. A calculated risk is one in which all the different potential outcomes have been thought about, and you only take it when you’re as sure as you can be that it’s the right choice.
Things can still go wrong, of course – it wouldn’t be a risk otherwise – but because you have researched everything thoroughly, there is much less chance of a disaster happening.
This sounds a lot like trading. Trading by its very nature is inherently risky; there is no way to know for sure whether any particular trade you contemplate will work out well. However, there are some ways to mitigate the possible issues. Using backtesting software and having a good trading strategy in place are just two of them.
Before you can start a business, you need to have proper funding in place. Depending on what you will be doing and how much you will be spending, that funding might be more or less – you’ll need to work this out in your business plan so that, should you need to find investors, you can. The point is, when you start a business, you must have the money to do it.
When you start trading, you must have the money to do it. Although we’re not recommending that you borrow money to trade, we are saying that unless you have a good amount of money to trade with, it will be hard to get started. Plus, that money should be money you can afford to lose. Make sure you are properly funded before you start trading, or your trading journey might be over before it’s begun.