Can you trade for a living?
Posted on: 03 September 2014 by Sarah Mello
For people in early retirement or semi-retirement, the idea of financial trading for a living can be a very appealing one.
This, after all, offers a semi-professional route in life which isn’t too time-consuming, can be carried out from wherever you may find yourself in the world (a beach in the Seychelles in February for example!) and can be extremely lucrative if you have what it takes.
And there are plenty of people out there in early retirement either living off their investments and skills in trading – or supplementing their income by doing so.
Of course, at the same time, it’s important to be aware of the risks and to realise that there are no guarantees of success. So try to read up from objective sources about investment strategies that have been proven to work. A good starting point here is the Tweedy Browne report on what has worked in investing. This is an objective evaluation carried out over a number of years and can be taken seriously.
And crucially, in choosing your trading platform, make sure you choose one which enables you to trial your strategy in demo mode for a while – to see if it works. The platform from Tradefair lets you work free in demo mode for up to 30 days, for example, and has many other features which make it appealing. But it is by no means the only one out there. The important thing is to try your strategy over a long enough period for it to be statistically valid. Depending on what type of trading you choose and how frequently you decide to trade – this will differ.
So, for example, if you start trading in equities during a bull run, don’t fool yourself into thinking you’re a world-beater. As pundits often say; a rising tide lifts all boats. If, on the other hand, you’re generally short on the market from your trading activities and there’s a bear market, then the exact opposite is true. Most traders try a balanced approach – often going long on one stock they like in a sector and short on another in the same sector that they don’t like as much. This is a more balanced approach and less susceptible to overall market direction.
Trading in international currencies can also be lucrative but risky – yet there are methods to mitigate the risks by taking a more balanced approach by trading one currency off against another – long on the pound versus the euro, short on the pound versus the dollar etc.
Another way to limit your exposure is to trade a particular market, but to set a strict stop-loss if that trade goes against you.
If none of this appeals to you, but you do want to start to put more money away – then simply see a reputable financial advisor. But if you do decide to start trading, then tread carefully, trial your system for as long as you can and try to build up your knowledge, and hopefully your overall stake, gradually.