About investing in trading from an investor who invested $200+ millions in different projects
In the financial markets only the market wins.
All strategies fail sooner or later.
It's all a scam.
Nothing is clear.
This is what people say about trading and then invest in the business of a random acquaintance, where only the tax office wins, which (business) scams in a couple of years with a murky ending, where reporting is done in Excel with a delay of 1.5 months on the knee of yesterday’s student. Yeah, we’ve reduced the risks, everything is clear and transparent, of course.
Trading is a business. It is commerce in its purest form. The only difference is that the goods being traded are standardized and trading is carried out through special software. And this is what all marketplaces are going towards - to drive everyone into the IT system, so that participants only press buttons and do nothing with their hands, and take a commission for that. This is how exchanges arose - through more and more regulation of bazaars and transactions on them, this is their final stage of development.
You can make money from trading, long-term and systematically. As in any trading business, if you find your working strategy or business model. You can sell washing powder, panties or phones for years, unloading boxes into a warehouse. You can buy potatoes during the season and sell them after the New Year. Or you can use oil, gold or money by pressing buttons. Moreover, in the latter case, you can grow much faster and more - the markets are huge.
Yes, you are trading against the whole world. Yes, there are also very smart people on the other side of the screen. But they are people too. Nobody knows the future, and there is no goal to be smarter than everyone else - you have to be smarter than the stupidest ones, then their money will gradually flow to you. In addition, the market is full of not only system traders, but also simply participants who came to sell your product, exchange currency, or buy shares for retirement. I bought it from one, sold it to another, and my hands become "fat".
You don't need the best strategy on the market. We need one that works statistically. Even if someone came up with this before you or comes up with it after you, if there are volumes, everyone will trade the same thing according to the same rules and make money. Just like in physical trading, you don’t need to be the best manufacturer of panties in the world, you just need to buy somewhere and sell your container of goods to someone. And you don’t need to become the best, the biggest or the most exceptional - you’ve earned it and that’s fine. Moreover, it is impossible to become a leader - there will be no one to trade with if you have taken all the money in the market. Just as it is impossible to become a 100% monopolist in the panties market, another manufacturer can always appear. Although, it would seem, cowards have existed longer than stock exchanges, and a monopolist leader would certainly have appeared there over centuries of trade. But - he is not there. And it won't.
If you have ever invested in someone else's business or started your own business, you will love trading on financial markets. Because people are not needed there - 1 trader or even a robot (algorithm) can just work. And for a thousand, million or billion of money the same button is pressed. It's easy to grow - just share your money. It's easy to shrink - just take your money away. You don't need people, you don't need a staff of fools or even an office. Just trade. The markets are huge, you can digest any money if you find the good strategy. It doesn't depends on geography. Profit can be in any currency. Full transparency of all transactions and market prices. Reporting is generated automatically, even taxes are considered automatically. No physical logistics. Anyone can get started - open an account with a broker and let's go. There is all the historical data on prices on the market over decades - unlike regular business, you can test strategies at reliable prices, which are the same for everyone. And also you can see how trading has gone over the years and immediately attach any analytics in any context. So you can immediately come to what in ordinary business years and millions are spent on, implementing CRM, parsers and other analytics of customer calls along with annual reports. And you can ideally take the money into your pocket at the end of each working day. All your capital is always with you.
But trading yourself is not an investment. This is a business that you do yourself. Even if you bought some magical signals for transactions, you have to do them, and this is an operating activity and generally stressful. Investment is when you put money in and do nothing at all. Well, ok, once a year you look at what’s going on there and add it to the deposit or take your profit. And someone else, ideally a robot (algorithm), trades. Then it's an investment. But you can do it yourself - it’s a very exciting process if you’re willing to immerse yourself for years, learn, lose and grow. As in any business, however, there is no difference.
You can trade anything. If you bought gold or a stock index, then trading it in the short or medium term can also be in the portfolio. Because the underlying asset you exit into after closing a trade is a currency, not gold or an index, and the asset is only used as a way to find price movement on which to make money. But within a trading portfolio, yes, you can balance different traded assets so as not to depend on one. But this is not necessary either - if trading strategies are different in time or analysis, then you can get profit on at least one and not worry about it. The main thing is that the trader earns money statistically - the rest doesn’t matter, they make money and that’s okay.
The form of participation in trade can be different. You can find auto-following strategies from brokers; usually there is some kind of rating of traders trading on their websites. Choose which one you like and join. You can buy a share of the fund, and in fact also join, but with the format of legal packaging in the form of a fund. There is no fundamental difference, but the entry threshold, conditions and terms under which you can withdraw money may differ, and the volatility of the price of the share itself may be added. You can buy a ready-made robot, rent a server and launch a strategy on it, connecting it to your account with a broker directly through a trading password, or simply give the trader the same password so that he can do everything himself. The idea is always simple - you give the opportunity to make transactions with your money too, by joining a large pool and doing everything in your account. The trader's interest is a subscription fee for the algorithm/signals, a regular percentage of the deposit or a percentage of the earned profit. If this is just a media outlet where a trader talks about his trades for free, then there may be referral links to register with a broker, from which he will receive part of the trading commission.
The more the strategy earns, the larger percentage of the reward the trader usually takes for his work. If we are talking about some index funds, the fund organizer can charge a fraction of a percent per year for administrative work. If tens or hundreds of annual deposits are made, they can take up to 60% of the profit and also take a couple of percent per year from the deposit simply for the fact of connection.
All risks are always on the investor. You can lose 100% of your money and even, under certain conditions, still owe money to the broker. This is rare, but it happens. No clever trader will give guarantees of profitability and will not compensate for drawdowns from his own pocket. Guaranteed trading is a bank deposit or bonds.
While the approach is the same: buy cheap - sell high, or borrow - sell high - buy cheap - return, the strategies differ in the set of characteristics. In general, they mean nothing and are not important if money is earned as a result, but for general development they can be looked at. Strategies differ in time frame (in what period of time the decision on the entry and exit price is made - from microseconds to tens of years), transaction length (similarly), frequency of transactions, type of analysis (technical or fundamental), type (with or against the trend, price arbitrage), automation (manual, semi-automatic, automatic), type of asset (any exchange asset or a set of them), capital requirements (how much money is minimally needed for trading and how much maximum the strategy can digest while remaining profitable), trading time (how long and when during the day during manual trading you need to be behind the monitor). For an investor, a proven working strategy may differ from another in terms of profitability, minimum deposit to start and maximum drawdowns, taking into account the duration of the gain. Technical indicators that are also generally important: the win rate (the ratio of profitable and losing trades), the ratio of income and losses on an average trade, the mathematical expectation of a trade, various ratios like Sharpe, Sortino or Kalmar. But in real life, there are so few working strategies managed by sane, negotiable, adequate teams that if you find one, don’t think a lot - invest it in and try it. As, indeed, in other aspects of life - marriage, partnership in business or any services. There are only a few adequate, skilled people in any field; usually there is simply no one to choose from, despite all the apparent diversity of choice.
There are hundreds of trading platforms and brokers in the world. They differ in the countries with which they work, the assets that are traded, commissions, exchange rates, IT platforms and regulators. With all the regulation and apparent seriousness of the industry and billions of money turning around there, the average broker for a client is a bureaucratic clumsy slug, where middle management knows and understands something, the owners have been on the islands for a long time, and ordinary staff changes every couple of years. The more automation, the better standard processes go, but the more difficult it is in non-standard situations. Boutique or legacy organizations can customize everything for the client, but everything is very slow and works on platforms that have seen dinosaurs or even manually, it happens. Ideal has not been and will not be anywhere. Yes, and you have to figure it out in any case, brokers can also go bankrupt, anything can happen.
If you decide to try trading, then by asking around your friends and looking at the strategies offered by brokers, you can basically filter them out based on the following criteria
- trading time using this strategy. Ideally, at least 10 years of public statistics on how trading is conducted. But this happens very, very rarely for various reasons. And after 10 years of publicity, the trader is usually no longer looking for money. Very good - 3 years. From 6 months to 1 year - the norm, especially if there are more than 1000 trades during this time, in general we can already assume that the statistics work and draw some conclusions.
- annual % of income and maximum drawdown. Allows you to estimate how much you will earn and how much loss there may be at the moment if you are very worried about it. In the long term, drawdowns are not important at all, they only affect the number of days a year when you can get money without losses. If you are investing for years and this is not your last money, you should give preference to high-yield strategies with large drawdowns - the illusion of reliability of strategies with small fluctuations and moderate returns will not allow you to make money. All other things being equal, you can put a small part of the capital under high income, and the rest of the capital on bank deposit. Risks will become lower due to diversification, and profitability in real money will remain the same
- minimum deposit. The less the better, so you can try with a minimum check. Never invest more at the start than you are willing to completely lose - the experience of selecting strategies and teams requires losses, and there will definitely be losses. Experiment with minimal amounts.
- maximum deposit. If you have a lot of money, it is important whether you can put it there entirely and capitalize the capital over the years. Spending time checking only to find out that the idea limit is 100 thousand dollars is a big disappointment.
Also important is the trader’s experience in different phases of the market, including crises, the amount of capital under management, the presence of own capital in trading, commissions for work and success and the frequency of their write-off, reporting and its regularity, brokers through which work is carried out and, ideally, the presence of a risk manager in the form of an individual person or structure. But, in the end, all this would be good to have if there is a working strategy. And the problem is usually that it doesn’t exist. Or the trader is a stranger or paranoid who does not know how to communicate with people. And usually it’s both.
Yes, and trade licenses and certificates do not guarantee anything. The people who lose the most money in the markets are graduated men with an ideal reputation and in suits, after which they attribute mistakes to ordinary managers and go to the next management company in the market, so that they can again sell a bright future in expensive offices. Any large bank that offers investment products to wealthy clients has a graveyard of failed investments and closed-end funds with a wide variety of strategies and tools. Only the track record and consistency are important. But, with any checks, there is no guarantee that the historical profitability of the strategy and the strategy that exists now are the same strategies, especially taking into account the traders’ love for optimization. There are also technical failures, human errors, hacker attacks, global financial crises and coding errors. Welcome to investing.
Trading, as an investment in business, is a high-risk instrument, even if the strategy itself is conservative. Depending on the age of the owner of the capital, it makes sense to allocate no more than 50% of the capital for all trading. Ideally, up to 10, if there is a lot of money, and the rest is allocated to conservative assets. In this case, with good management, 10% of the capital, giving a conditional 50 per annum, can give a 5% return on the entire portfolio, which is great.
Typical horror stories, doubts and blocks when investing in trading:
1. Trader does not risk anything, receives a percentage of profits, and loses nothing from losses - welcome to investing, this is the general scheme.
In case of bankruptcy of any organizations or schemes, the traders will not return anything to investors; the risks are always on the one who gives the money. And the bank with the deposit can also go bankrupt. And any business. And even very big. The trader loses time, reputation and his invested money, if any. But there is no return higher than inflation without risk; it won’t work to shift it to someone else, that’s how the world works. Yes, and deposits below inflation are also sometimes lost, such bullshit.
2. The trader makes 100 accounts and shows only successful ones - yes, this is exactly how it works.
Every trader has a graveyard of hypotheses that did not work out. Do not invest money in strategies that work for a short time; the more trades, the higher the chance that the strategy statistically works. When in doubt, wait or request historical test results.
3. All strategies have a lifespan, they all close - there is nothing eternal in the world.
Withdraw your profit or deposit after achieving X2 (+100% profit) and do not risk your capital at all after that. Businesses also close, people lose their jobs, children grow up and leave home - but this is not a reason not to do business, not work and not have children.
4. The trader will make money even if I am in the red because... he takes money for management - yes, that's how the market works.
Choose traders who work only on results, they are confident in themselves to live only on profit, and not charge 2% per year for connection. On the other hand, those receiving management fees are less risk averse because their income is stable.
5. Trading is a risk, not like real business. But any business is a risk.
The nuance is that in trading you see the result every day in the money in the account, and if the trader is bad, he will lose his head very quickly. In an ordinary business, you can eat up your turnover for years, hiding losses in reporting and loans, pretending that everything is ok, and then close with losses and subsidies. Bad news quickly is better than bad news 5 years later.
6. Why does a trader take money if he has 100% per annum, because you can work for your own and become a billionaire - exactly for the same reason why businesses take out loans from banks.
To work the same amount and earn more. Taxes, commissions and expenses eat up a significant part of success, and even without them, at 100% per annum, turning a million out of a billion takes 10 years. But I still want to see the money before women stop being interested in me.
7. Why does a trader need my pennies if they can go and take yards from the big guys - then why do banks need deposits and account balances from individuals if they can go and take a lot of money from the big guys.
If the work is automated, then every penny is additional income without increasing labor intensity.
8. I won’t earn anything with small money, but putting big money is scary.
Put small money and wait longer, small money will turn into medium money, and then into big money.
Yes, and you need to start somewhere, at least for experience.
9. I've already tried trading, it doesn't work - and you've also tried tasteless ice cream or steak, but that doesn't mean that all dairy products or meat in the world are bad.
This is an ordinary business with a specific business model, nothing more, where, as in any business, there are successful or unsuccessful companies. The task is to find a successful one by brute force. If you are not prepared to make mistakes and lose money, you will not earn anything.
By the way, long-term investing in stock indices, beloved by conservatives, is, suddenly, also trading. It’s just that the strategy of this trading has become widely known, tested, is still working and is actively promoted by institutional investors and experts. But in essence, this is a beta strategy (without the desire to overtake the market), passive in line with the trend with an unlimited time frame on the arithmetic average of the value of the largest companies in the economy or industry. Position holding time ranges from years to decades, low frequency trades, long only, with regular replenishment and rebalancing, and exit tied to the investor's retirement. Trading without stop losses and take profits, minimal commissions and slippages. Live with it now.