Almost on a daily basis I see online advertisements stating “Become a Trader in 10 minutes!” or something idiotic like that. Sadly, I know of too many people who thought it would be a good idea to put some money into a trading account as a personal challenge, to earn some extra money, or just for fun. My strong advice: don’t!! That adventure is very likely to turn into a colossal waste of your talents, time, and ultimately a lot of your hard earned cash.
Not so long ago, I came across an amusing looking chart, “The learning curve of professions,” that even as a caricature fairly portrays what you might expect from a stint with trading. You’ll learn the ropes quickly but your learning curve will quickly flatten, as will probably your bank account and a few other aspects of your life.
The image of crucifixes and little stick-men falling to their deaths looks funny, but in reality, this situation is not amusing to those who actually trade themselves into a hole. Here’s a glimpse of its seriousness from a personal appeal posted on a financial blog:
Posted by [xyz] on Thursday 4 Jan 2007
I’ve traded for 7 years as a discretionary trader for myself full-time in equities and futures … producing a total gain [of] over 700% on starting capital. I’ve made and lost money every way by experimenting. I just went bankrupt because a CTA I started and financed ran out of cash forcing me into bankruptcy. Now, totally broke does anyone have advice on how to bounce back to leverage my passion for trading and experience? … I also have an MBA.
Ending up “totally broke” after seven years of trading with no clue how to proceed is desperately unfortunate. But if you think this person was uniquely unlucky or inept, you’d be wrong; most speculators by far end up losing money at speculation, and this is true even for many that for a time seem like natural born traders. In some cases, the consequences can be distressing.
One of the great men in the speculators’ hall of fame that deserves mention about here was Jesse Livermore. In 1929, he correctly predicted that the U.S. economy would experience a depression and that the stock market would collapse. Trading on his macro convictions, he became a star and hugely wealthy at the time when most investors took massive losses. However, by 1932 Livermore was declared bankrupt, and in 1937 he scribbled, “I’m a LOSER!” on the wall of his hotel room before putting a gun to his head. Jesse Livermore was neither the first nor the last successful speculator who got trampled by markets and ultimately chose to end his life.
So if you’re contemplating “having a go” at trading currerncies, commodities, or whatever else for fun, do yourself a big favor and don’t do it.
Alex Krainer is an author and hedge fund manager based in Monaco. Recently he has published the book “Mastering Uncertainty in Commodities Trading“.