I’ve lost my job, should I turn to trading?

You must have read or heard about how people have made tons of money from trading shares, forex or other forms of investment. There has been no end to advertisements on the web, in the papers, and over the radio, all talking about the profit potential of trading.

All the hype may have given you the impression that trading is as easy as having a computer, opening and funding an account, and that’s it: you start trading and voila, wait for the profits to roll in. It is not quite that simple. The decision to trade should be made dispassionately, with serious consideration of the facts, the risks, and the possibilities. Here are some things to consider:

High risk, high return
Trading in shares can indeed be very profitable, and some people have made huge amounts of money doing so. And, though many people acknowledge that not all of those who trade make money, they also see that it is possible to succeed.

The reality is that the majority of those who try trading do not make money. Statistics indicate that 90 to 95 per cent of traders see their capital evaporate within a year. Yes, many people lose their money from trading. Make no mistake about it: this is a high-risk high-return business.

Small capital requirement
There is the prevailing notion that you need only a small amount of money to begin trading. As a start, trading with a small capital is possible. The issue is not limited to starting, however; it also involves longevity. What is not always told to investors is that your odds of making money are closely and directly correlated with the amount of capital you start with. The bigger the amount you start with, the higher your odds of success.

Think of it as a business. The undercapitalised business is more likely to fail than the business with adequate capital. When starting capital is small, once you lose on a few transactions you’ll already be counted out.

If you have lost your job, what money are you going to use for trading capital? If there is only enough money to cover your living expenses or other important needs, that money should not be used for trading. You’re not only putting your money at risk, you’re also increasing emotional pressure on your trading, which could lead to bad judgments.

Commitment
Contrary to the popular notion, trading requires a lot of your time and commitment. To be even moderately successful, you need persistence and patience to develop your analytical skills to increase your odds for making profitable trades. Trading is not a pastime; it is a business. Like any business, nothing is sure about it and not everybody can do it. The upside is that success is possible.

The downside, however, is that you need to invest not only money but also a lot of your effort and commitment. It is as demanding as any business or any job you have ever gone into. You know what it takes to be successful in your business or career. That same discipline and commitment is important to trading.

Do you have what it takes?