This is a good thread. A financial plan is essential if you’re going pro. :35:
I would be interested in what mastergunner99 has to say about registering as a business or sole trader(not sure what you call it in the U.S - basically you work for yourself and pay tax as you go) when going fulltime as a trader. Obviously this going to vary from one extreme to the other depending on the country taxation rules. I am not talking about registering a business as a means to right off meaningless deductions.
It’s something that I don’t think people really think about. There is a stark reality that trading systems fail and that even if you have a winning edge you very well could go months on end without adequate profit waiting for the huge gains to kick in again.
When you have a job, there is a great sense of security, even in God’s arrogant country where the unemployment rate is uncomfortably high.
It really takes a lot of money to make the move to trade professionally. Even Babypips suggests a trading capital of 50k, and they aren’t even talking about having folks trade for a living.
When people get more realistic about their aspirations, their focus sharpens. So you have to find the balance of maintaining healthy goals and possess the skill necessary to get there. This isn’t like sales where it’s just a numbers game. This is about not only obtaining an edge, but also maintaining that same edge in this multi billion dollar a day industry.
I would love to have the annual Babypips cruise where we always get together and toast our successes, but by far and large for the majority of traders around here, the dream itself clouds the reality required to succeed.
Assuming you are trading your own dollars tor your own personal gain or loss, I see no reason to register as any entity other than as a sole proprietor. In the US, your social security number is suitable to file your taxes as a sole proprietor, even under the name you conduct business under.
You would enjoy enough tax deductions as it is. Besides, odds are the entities you would register as have pass through taxation so it all lands on you anyways.
There are some really good points here that must be and are in my thoughts as I make this move. I really feel passionate about trading, but I’m not reliant on trading for my primary source of income as of today. What happens when the pressure to perform really hits home? Will my trading style change inadvertently as a result of the pressure? How do I structure my days to have the best chance of succeeding? There is no way to know everything (or probably anything) for certain. I will be leaving the corporate world to do this, and I intend to bring with me a professional business owner mindset. I’m sure that however I prepare myself mentally, the reality will be harder than what I’m expecting.
I do agree but there has to be advantages when you see traders registering business names - maybe harboring other investment vehicles I guess. I personally see advantages in terms of superannuation in terms of a tax free investment from the entity into your retirement fund account. Assuming we are talking about trading for life. A sole proprietor could obviously put cash into a retirement fund but under an entity you would be contributing the government minimum plus the employee contributions(yourself)
For some, the jump from demo to real is mind bending.
I’m all about eliminating as much risk as possible, as fear generally derives from uncertainty.
Even if it took you five years, wouldn’t it still have been worth it?
It differs in the US. The self employed have an entire host of tax deferred vehicles that the employed do not have access to that allow greater contributions. That would eliminate the need to incorporate, hire yourself as an employee, just to try to shelter more dollars from taxation. For those that exceed those existing maximums, they seek out other means such as municipal bonds and an assortment of life insurance products to further defer or eliminate taxation.
Thanks for the quick reply mastergunner99, I am not trying to stray from the topic just trying to bring up a few seldom mentioned topics that should be thought about long term. Superannuation here is a great saftey net and is well protected (from yourself mainly :58:). Meaning getting access to it before it matures is difficult. A lot of traders and business owners do find themselves in the deep end when things don’t go to plan. It can make the difference if you do screw it up and start falling behind in your mortgage repayments.
I’m the US, retirement savings is almost always driven by employee contributions. It’s a perk if the employer contributes.
Everyone contributes to Social Security. Employers pay half the tax for the employee, while the self employed are stuck footing the entire bill themselves.
Voluntary retirement contributions are generally accessible, though with some limitations, while the involuntary type is almost never accessible.
It’s interesting how different countries handle the issue of people simply not saving enough to support themselves when they need the most help financially.
This is an interesting assessment of the situation.
My assessment of the risk associated with my ForEx trading capital is far lower than that of my precious metal holdings.
With my ForEx account I have total control over the risk, with other items the percentage of capital tied up in an uncontrollable environment is far higher.
For example, I can choose to risk 10% of my ForEx account at a time, but my precious metals are 100% paid for, and for someone who has just taken out a mortgage they could have a risk exposure over 900%…
So, did we defined when to go Pro (or lets call it pro-deo) now? I lost track in the different conversations…
To minimize risk, the initial post was suitable to properly prepare someone to become a professional trader.
It’s one thing to become a professional, and an entirely different story to stay one.
Well, here are my two cents:
When you are ready to become a pro-trader (trade for yourself):
Your key skills relate to trade execution in line with specified trading rules.
- You have proven to consistently execute trade setups that are in line with the trade plan, either manually or automated.
- You are able to understand a trade strategy and apply a trade strategy.
- You are able to understand a Money management plan and apply it.
- You have the opportunity to assess the market and timely setup trade setups.
- Understand the key risk management areas, being:
o Market risk
o Currency risk
o Systemic risk
o Regulatory risk
o IT risk
o Account/Money management risk
o Fiscal risk
- Operational risk (includes trade execution) - Understand tools and techniques required to manage risks from the key risk areas.
- You understand the fiscal implications to profit made and considered these in your money management rules.
- You have mastered the trade execution to allow acceptable entry and exit of a trade.
-
[Hogarste input] You have commitment from family to trade and the financial risk taken doesn't signifcantly affect the family financial situation.
It is not required to: (But is preffered)
- generate a full income from trading (part-time proffessions exist).
- develop a trade strategy or money management rules.
- Apply tools and techniques related to key risk management areas yourself, this can also be outsourced.
- Be continuously available to assess the market and setup potential trades.
- Fully understand all implications of an applied trade strategy
- Understand the market and assess direction, bias or sentiment.
- Understand indicators used.
I applied my experience as an auditor for banks… It is not limitative, but I think it is a good start.
Yes. The ability for someone to be able to assess their / families financial circumstances and have the patience to time their decision in a way that offers the best possible chance for success (financially personally, etc) is in my view directly tied to ones ability to be successful as a trader, which requires an ability to assess risk and maintain patience prior to taking action. I would agree that it makes sense to trade on a part time basis and get to the point where one is not starting their business to go full time at it, but one is already having the required results to make a sideways step into it. This is a really good thread btw.