Once I have re-read my article “Why Your Life is not a Forex Success Story”, I have realized that I should belabor this theme and discuss several ways of becoming a trader you may take. There is no common formula and everyone have to follow their own way. This applies both to life in general and to trading in particular. This article will be devoted to the ways the people are breaking into this business. We shall talk about pluses and minuses of each way and take it on ourselves.
Before reading the article and writing your questions in comments section, I recommend to watch this video. It’s not long, but covers biggest part of questions on the topic.
I believe we should start by defining what it means to be a trader. People who want to become a trader think that trading is all about big money, freedom, expensive cars, a seaside house and other stuff of the rich, luxurious and successful life. Moreover, it doesn’t seem to be really hard and all you have to do is to sell and buy. Easy peasy. That’s why we all start trading, we all want to have our cake and eat it. Unfortunately, thing do not happen like this in real life. You can make big money off trading but believe me it is not that easy. Get ready for restless nights, nervous breakdowns, gibes of your friends and the darkness of despair.
Personally, I treat trading as a business, the main purpose of which is gaining a profit or, in simple terms, making money. You can surround this work with an aura of chosenness, you may consider it an art or even a spiritual path (I have seen that too). However, trading is like other jobs that we do to make living for satisfying our desires and needs.
I think it’s high time to describe 4 ways to become a trader:
- A lone trader masters this job on his own, sometimes reinvents the wheel and makes the well-known mistakes.
- A student trader attends trading courses, reads the recommended books and attempts to find the Holy Grail of trading or to draw a secret knowledge of making money from the trading “guru”.
- Proprietary trading. A trader works in a private trading company.
- Employment at a financial company. For example, you may get hired by a brokerage company, an investment fund, a bank or a television company (for example, the RBK TV). You will be able to rub elbows with the people of this business, and start trading on your own nickel or get appointed to a trader.
Let’s dwell on these opportunities.
A Lone Trader
If you are a self-determined, strong, obstinate and driven person and you want to keep your privacy and freedom for whatever reason, then this way may suit you well.
You are going to take these steps:
- You are going to learn everything on your own in the following way: read the books, study the charts, find some patterns in the price movements on the market.
- The practical stage. You will open the trading account. You will trade, make a loss, correct your mistakes and repeat that again and again.
- The profitable trade. After you have finished your training and experienced being on a bad streak and a comedown, you may finally get a steady profit. Now, you are good enough to call yourself a trader. If you don’t make silly rookie mistakes, then the sky is the limit for you.
- What now? You can enlarge you trading capital, or raise the investors’ money for trust management, or you may establish you’re a fund, a proprietary trading company, a brokerage firm or a training course.
However, this way has the following disadvantages:
- It may take years to learn trading and no one can guarantee your success. Things often go this way. A fresher reads different books, then puts the trading strategies on the test and keeps looking for the Holy Grail. He knows a lot but cannot trade profitably.
- You don’t know the way you should move in at the beginning so you have to try lots of things until you understand the very sense of trading and the suitable trading style.
- Many people cannot make it through the hard times of the money loss and just fade away.
Jesse Lauriston Livermore, Michael Marcus and Bruce Stanley Kovner once decided to go this way.
A Student Trader (Learning from the Trading Courses)
Let’s talk a bit about the courses. The dealing centers and brokers always run some training courses. The initial ones are free of charge while the advanced ones are fee-paying. Naturally, these courses are designed to attract new clients and gain extra profit (by selling the courses). A successful trader may give the so-called original course usually devoted to his own trading style. Such courses are quite expensive but you can easily find many free tutorials and webinars made by these traders publicly available on YouTube.
I should say that there is no shortage of the trading educational content nowadays. However, it is very difficult for a budding trader to distinguish the worthy content from the trash.
Let me tell you about the pluses of the trading courses:
- The organized information. You don’t need to read a lot of different books to understand the essence of the trading and how to make money off it. You can get it all on a good course.
- A ready-to-go trading system, which will help you to make money. OK, I am painting a rosy picture but generally, it is still possible.
- The mistakes you should avoid. Any trading course, especially the one for the freshers, always have a part devoted to the mistakes. If you are aware of these mistakes, you will be able to avoid making them and save your time and money. You will also have a chance to start trading profitably right away.
- The after-course advice. Sometimes, after a huge amount of the information is processed, you will definitely have the important questions. This is the very moment to have the opportunity to pose these questions to your trainers.
- Community of the associates. You will meet many like-minded people on these courses that may help you in mastering trading or will just be useful in the future.
The minuses of the trading courses:
- You may pick a bad course. You may waste your time and money and won’t understand anything.
- Endless training. It happens like this. A person goes through a course and likes it so much that he (or she) wants to learn more and goes to another course. Of course, that’s not enough and he keeps doing that again and again. At the same time, this person cannot make sense out of the different trading approaches, workstyles and trading systems and it gets very difficult to see the right way.
- Unfortunately, it’s impossible to become a trader just by passing the training courses. Therefore, if a student is not willing to continue his education after the courses, he will never become a trader.
Proprietary trading is a type of business in the sphere of finance. In simple terms, this is a private trading company. What is the essence of this business? Let’s imagine that you have become a good trader and earned several million dollars, and now you want to earn as much as that or even more but by the aid of other talented traders. You launch your own company, coach the traders, give them your money for trading and control the risks. The traders handling profitable transaction is the main source of a private trading company income. Companies of this kind can also make money out of coaching the traders, or charging the trading terminals on a monthly basis, or getting the stock exchange rewards for the trades made by the company’s traders.
The advantages of employment at a proprietary trading company:
- Practical training that will improve your trading skills.
- Risk management. You won’t lose a lot of money.
- You can always get help, support and advice. The company wants you to make money for a long time. Therefore, if you are a promising person, the company will give you everything you need to work well.
Be ready that if you are trading on the company’s nickel and don’t make a profit, you will be fired. This does not apply to you in case you are trading on your own money (for your reference, the minimum security deposit is usually from $1,000 to $2000).
If you want to learn more about proprietary trading, I would suggest you reading the book “One good trade” by Mike Bellafiore.
Employment at a financial company
The idea of this way is to get to know the real traders, managers and investors. You are to understand how they make money out of this business and gain practical experience in the global financial markets. This is quite a circuitous route but it has its advantages. First, you will get a regular salary. Second, it provides good opportunities for professional growth in the sphere of finance. If you decide to go on and build a career, you will be able to take an exam and become a certified supervisor over financial market. In addition to other opportunities, you will be able to work officially as a trader, for example, in an investment bank.
The list of the companies that a novice trader can work at:
- Stock exchanges
- Brokerage firms
- Investment banks
- Trust companies
- Investment funds
- Financial or business media (TV-channels, newspapers, magazines, web-portals, etc.)
This type of the companies looks big time and that may scare off a budding trader but these companies sure can hire a person having a college degree (in economics, mathematics or IT).
Edward Seykota, George Soros, William J. O’Neil and Alexander Gerchick chose this way to learn trading.
The first three ways to become a trader (a lone trader, the training courses, and proprietary trading) will suit everyone. In this case, a trader can be completely independent and not bound by any obligations. If you just want to make money or get some extra income beyond the bank deposit interest can be, you may find a profitable trading strategy that will give your from 20% to 100% income per annum and follow it.
The fourth way to learn trading (employment at a financial company) is actually building a career. However, you should have at least a university (college) degree (a university degree in economics would be the best one). You will be living a life of an employee including all its pros and cons, opportunities for growth and limitation on freedom. I have just realized one thing: if you follow this way, you may never need to start trading in the end.
Personally, I was following mainly the first way but I was also gaining knowledge by the means of the second and the third way.
For your reference. You can read the stories of the best traders at the beginning of their careers in the books “Market Wizards”, “The New Market Wizards” and “Stock Market Wizards” written by Jack Schwager.
I will leave you with this. Any way of becoming a trader requires self-improvement in the first place. You can learn a lot, you can attend dozens of trading courses and get acquainted to hundreds of traders but it only up to you whether you will make money off trading or lose it.
I think that’s your lot. Good luck!