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Borrowing money to fund your trading account,Good/Bad
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Borrowing money to fund your trading account,Good/Bad

  #11 (permalink)
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Rad4633 View Post
In a recent reply in another thread, a comment was made dont borrow money to trade with. I have gave this thought many times before because I have read it over and over on futures.io (formerly BMT)

Anyone that has ever started a small business knows a start up of 100k is minimum, so if the same is applied to trading being a business, whats the difference? People mortgage their homes, max credit cards, borrow against equity, cash out IRA and so on to fund a new start up a small business.

The risk are the same, the pressure is the same, the stress is the same. 95% of small business fail 95% of all intra day traders fail. So whats the reason why everyone says dont borrow to fund your trading business? Now I need to say this most people who start a small business have experience in that area, so assume the trader has experience in trading, already past the learning stage. Ive learned to clarify on futures.io (formerly BMT) to prevent more discussion than was needed for a answer. Have I considered doing this yes,I like size figured I throw it out to see how the majority thinks.whats ur thoughts? Because honestly I dont see the difference because business is business, you make it,go bankrupt, or earn a salary.

Don't dare borrow money to start trading. It is a very bad idea. Bank not going to give you money unless you do it on credit cards. I can tell you a horror story about using credit card cash advances to fund trading account. Other option is to go to friends and family which is another very bad idea as they will hate you when you lose it. Even though they may tell you they understand the risk reality is they don't. They don't expect you to actually lose it and if you do it will not be good.

Borrowed money only increases pressure and trading is hard enough. If you start to lose that pressure when you are dealing with cash is difficult enough. If you are dealing with borrowed money and start to feel like you may not be able to pay it back or stay ahead of the credit card interest most likely you will start to take larger risk which will be your demise. There is risk with any business but trading is very different and should not be compared to taking loans on other types of business.

Borrowed money to fund your account = your demise.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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  #12 (permalink)
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Trading...

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as a sole prop is not a "business" in any of the typical ways. The pundits that say treat your trading like a business are de facto correct, but most of them have never done anything tangible in the market.

A typical business has a "product" that is typically exchanged for money with a second party know as customers...trading is none of that. No service, no product and no customers means no exchange for money.

Trading should be self funding past an initial investment...and it does not to be anywhere near $100,000. A $5,000 account traded well is a $10,000 account in 90 days because we have leverage on our side...we make money using other peoples money.

Anyone who uses non-risk capital to start trading as a non classified sole prop is, in my opinion either lunatic or delusional. PLEASE PLEASE PLEASE do not do that. Risk capital defined as non financed actual dollars that you could live without and not miss if totally gone.

This is the hardest easy money in the world and while the successful consistent result attained by a VERY few looks glamorous, this is a bare knuckle back alley way to earn a living. The fool hearty, the unprepared, the arrogant, the easily discouraged, the thin skinned, the expert programmer with all the answers and no experience, the pop psychology trading author devotee's, the SIM trade heroes, awesome indicator groupies, and many other stereotypical sub groups are daily led to their demise and financial ruin.

Get a clue (education through experience) and build confidence with risk capital. If that means trading one lot micros with a $400 account so be it. If you can trade you will find a way. Build that account and routinely pay yourself. Lose $400 and find another $400. Keep your day job and never ever bring borrowed money or money required to operate your household to the table.

gotta stop.

NO borrowed money ever.

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  #13 (permalink)
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Gonna go against the grain on this one.

The answer is - it depends.

I started in this business by being fronted by the guy who was mentoring me. Kinda like thousands of guys did back in the pit when that was still relevant. This was a few years ago when leverage wasn't insane. You needed $50k just to punt a few grain contracts overnight.

Needless to say this wasn't like borrowing from grandma. My mentor had direct oversight on my account and kept me on a tight leash when it came to risk control. He also was confident enough that he could teach me to trade successfully like him.

Never had any problem returning his money after my learning experiences and I never would have gotten started without the help.

Of course these days I totally agree that you should just self fund an account to $10k yourself since margins and transaction costs are much less than they used to be (relatively speaking). If you can't make it with a $10k account you definitely can't make it with $100k borrowed.

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  #14 (permalink)
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Some of the most successful traders got started with a stake from someone else. So the thought of borrowing money to trade isn't entirely unheard of. The question is how are you going about it?

Are you working with a mentor as the previous poster referred to where they have direct oversight of what you're doing?

Or are you looking to borrow against your personal assets/credit from a bank to fund a trading account?

If your answer is the later of the two, what is your track record and experience in trading?

My point here is there are two types of scenarios that can play out here. One would be that you're an experienced trader. You've been successful for an extended period of time and would look to increase your working capital, etc. The other scenario which is less favorable, would be that you have very little to no experience in trading and are borrowing the money on more of a pipe dream. Its pretty clear to see who would most likely be the more successful of the two.

Another consideration is and I'm not giving you personal legal or financial advice here but something that I am familiar with which is, under what structure are you operating your business and borrowing the capital? I personally operate my trading within LLCs. The reason for that is paramount in that I'm separating my business' liabilities away from my personal liabilities and vice-versa.

My point here is similar to what others have eluded to. If you have no experience of extended success and are just looking to fund or increase your trading capital by taking a straight forward mortgage against your primary residence or personal loan or credit line (card) borrowing under your personal name or sole proprietor name, you're putting yourself/family into a potentially dangerous financial position should you fail to service that debt. Not only will you have failed at trading but you will be financially destroyed. I knew a guy during the dot com boom days that advanced cash off all his credit cards and invested it all in tech stocks. He did extremely well at first but then when different market conditions came along, he ended up getting nailed. On the flip side, I know another guy that took all of his credit cards and did an advance and bought a multi-unit condo building which turned into a multi-million dollar reward. Do you want to know what the difference was between the two of them? The tech stock guy had no idea what he was doing while the other guy knew real estate very well by working in the field as a realtor and finally went for it. There of course is luck involved but I think you'd get my point.

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  #15 (permalink)
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wldman View Post
Trading should be self funding past an initial investment...and it does not to be anywhere near $100,000. A $5,000 account traded well is a $10,000 account in 90 days because we have leverage on our side...we make money using other peoples money.

Get a clue (education through experience) and build confidence with risk capital. If that means trading one lot micros with a $400 account so be it. If you can trade you will find a way. Build that account and routinely pay yourself. Lose $400 and find another $400. Keep your day job and never ever bring borrowed money or money required to operate your household to the table.

gotta stop.

NO borrowed money ever.

@wldman, thank you for a great post. Interesting point that with leverage, we are already trading using other people's money.

I'd be curious to hear your thoughts on starting out trading other people's money with size, through a prop like TST, where you don't put up your own capital, but give back 30-40% of profits, as opposed to starting out small on your own and building up over time (given competency in both cases).

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  #16 (permalink)
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Rad4633 View Post
In a recent reply in another thread, a comment was made dont borrow money to trade with. I have gave this thought many times before because I have read it over and over on futures.io (formerly BMT)

Anyone that has ever started a small business knows a start up of 100k is minimum, so if the same is applied to trading being a business, whats the difference? People mortgage their homes, max credit cards, borrow against equity, cash out IRA and so on to fund a new start up a small business.

The risk are the same, the pressure is the same, the stress is the same. 95% of small business fail 95% of all intra day traders fail. So whats the reason why everyone says dont borrow to fund your trading business? Now I need to say this most people who start a small business have experience in that area, so assume the trader has experience in trading, already past the learning stage. Ive learned to clarify on futures.io (formerly BMT) to prevent more discussion than was needed for a answer. Have I considered doing this yes,I like size figured I throw it out to see how the majority thinks.whats ur thoughts? Because honestly I dont see the difference because business is business, you make it,go bankrupt, or earn a salary.

@Rad4633: Borrowing money for funding a trading account is VERY BAD. An account can already be leveraged. If you trade with borrowed money, your are over-leveraged. Over-leveraged traders are calling for trouble and will see their accounts depleted.


Last edited by Fat Tails; October 4th, 2012 at 08:13 PM.
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  #17 (permalink)
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Rad4633 View Post
In a recent reply in another thread, a comment was made dont borrow money to trade with. I have gave this thought many times before because I have read it over and over on futures.io (formerly BMT)

Anyone that has ever started a small business knows a start up of 100k is minimum, so if the same is applied to trading being a business, whats the difference? People mortgage their homes, max credit cards, borrow against equity, cash out IRA and so on to fund a new start up a small business.

The risk are the same, the pressure is the same, the stress is the same. 95% of small business fail 95% of all intra day traders fail. So whats the reason why everyone says dont borrow to fund your trading business? Now I need to say this most people who start a small business have experience in that area, so assume the trader has experience in trading, already past the learning stage. Ive learned to clarify on futures.io (formerly BMT) to prevent more discussion than was needed for a answer. Have I considered doing this yes,I like size figured I throw it out to see how the majority thinks.whats ur thoughts? Because honestly I dont see the difference because business is business, you make it,go bankrupt, or earn a salary.

@Rad4633:

Agree! Not different than any other business. Most advice given in the trading community is to not trade your monthly rent, only trade risk capital. This is for newbies wanna get-rich-overnight. Many big traders trade $millions in a day, mostly leveraged just as a business. But they know what they are doing, just like another good business.

So, here it is in a nutshell:

If one has acquired the skills, education, mental, physical, and resource capabilities demanded for a specific job he will most likely be successful. When he makes a mistake, he knows how to fix things.

If he needs more help he should go back to the big "if" and re-read and understand the fine print that follows.

Cheers!

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  #18 (permalink)
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MWinfrey View Post
I agree...I suspect most businesses that fail do so because of cash flow problems which is compounded by the amount of debt they have. I don't know this as a statistical fact but I know from personal experience of having owned a small business and seeing that issue from a number of businesses I supported.


ThatManFromTexas View Post
@Rad4633

Disclaimer: This post does not represent the view point of the owners, managers, or moderators of this web site and is not intended as a slam against any moderator, board member, any banned former members whose name we dare not say, any other living person, any recently living person or any person or persons whose status we are not sure of and especially not for any platform vendor with a questionable product and a pit bull lawyer. This post is meant purely for entertainment and should not be confused with a real thought.

I am not a programmer, coach, trainer or self appointed guru and do NOT hold myself up to be a good example for anything. I do not have a book, trading room or seminar. Have a professional review any code you receive from me before you trade real money with it. There is a high risk of loss trading futures. I am not responsible for any losses incurred trading real money with any code you receive from me .Even though I have an opinion on every subject under the sun, I do not give financial advice. Nor should I be held responsible for feeble attempts at humor at your expense.


That said....

1. Your mortgage analogy doesn't hold water.... If your home is foreclosed on .... your credit is shot... but you don't owe the bank any more money . You borrow money and lose it trading... you still owe the money.

2. No one in their right mind would loan you $100,000 to start a business where ... you have no "skin in the game" .... you offer no collateral .... and you have no experience making money doing what the start up business does .

3. If you do decide to rob your 401K .... or bet the farm ... or max out your credit cards ... please let me know so I don't write you any more indicators... I don't want to be an enabler

Thx you TMFT Im smiling like a Texan reading your reply

1)Ok you have a valid point, If you had a business loan rather than personal kill the business loan thru bankruptcy and your personal score survives
2)Ok need 2 yr trading returns Ok I get this too
3)No worries my farm isnt tied to my home loan,plus I made the right away from hell to the home/plus 2 acres so please keep your PRETTY indi;s for me.....seriously ty TMFT I do get it!

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  #19 (permalink)
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Fat Tails View Post
@Rad4633: Borrowing money for funding a trading account is VERY BAD. An account can already be leveraged. If you trade with borrowed money, your are over-leveraged. Over-leveraged traders are calling for trouble and will see their accounts depleted.

This is for laughs, what do we call a well funded trader whose accounts are depleted

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aligator View Post
@Rad4633:

Agree! Not different than any other business. Most advice given in the trading community is to not trade your monthly rent, only trade risk capital. This is for newbies wanna get-rich-overnight. Many big traders trade $millions in a day, mostly leveraged just as a business. But they know what they are doing, just like another good business.

So, here it is in a nutshell:

If one has acquired the skills, education, mental, physical, and resource capabilities demanded for a specific job he will most likely be successful. When he makes a mistake, he knows how to fix things.

If he needs more help he should go back to the big "if" and re-read and understand the fine print that follows.

Cheers!

Aligator there was a comment in your Hoax thread that compelled me to write this one. The big IF is dead on. TY for your reply

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