To become a trader is to be an entrepreneur

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There are many similarities between running a business and trading. In both cases, certain rules must be respected to put all the chances on your side and to open the way towards your success.
becoming a trader

A demo account: Market research to test trading

Before creating your company, it is essential to carry out a market study. This study lets you know if your project is viable by studying the characteristics of your sector of activity. This is a phase of information gathering and learning. The objective of the market research is to help you establish your market positioning and give you an idea of your company's growth potential in the coming years.

With trading, there is a tool that lets you carry out your market research, it is a demo account. It lets you know if your trading strategy is viable. Are you able to generate profit in the medium/long term? To find out, you need to test your trading strategy for at least several weeks. If the test is conclusive, you can then move into real trading.

Your capital as a working tool

To start your own business, you need to invest money. You use this money to develop your business. It's your work tool. With it you can pay your expenses, buy equipment, advertise, recruit staff, develop new products/services, etc. If your business runs out of money, it goes bankrupt. You then lose the savings you invested in your business.
With trading, money is also your working tool. This is what lets you do your job. You must therefore seek to protect it in order to be able to continue trading. This is done through learning risk management. If you raze your trading account, you go bankrupt, you lose your savings.

The more money you have invested, the greater your risk. Just like a business, you should always consider the possibility that your business may not work, that your business may go bankrupt. So you have to take measured risks and invest only the money you're willing to lose.

The importance of having a strategy

To develop your business, you need to define a business strategy. This is the method that you must implement to allow your company to grow. It ranges from positioning your products/services in terms of price/quality to your communication strategy to finding new customers. If your company does not have a strategy, it is doomed to go bankrupt.

In trading, this business strategy corresponds to your trading strategy. It defines the conditions that make you open a position in the market (buy/sell signal), the size of your positions, when you should take your profits and how you manage your stop loss. Without a trading strategy, you cannot win on the financial markets. This is the only way to generate medium/long term profits.

If your strategy does not work, you need to be able to question it. In this case, trading offers you the advantage of being able to conduct a new market study via the demo account.

The search for trading ideas or how to find good customers

The search for new customers is what enables your company to generate growth. You have to spend most of your time finding them. The objective is to find good customers, i.e. customers who earn you the most money while spending the least amount of time and money.

In trading, this corresponds to the research phase of trading ideas. You need to scan the market for the most interesting trading opportunities, i.e. those that can generate the most money for you (the price target) while having the lowest possible risk (the distance of the stop loss from your entry price). Not all trading ideas are equal. We must select the most relevant, those with the greatest potential.

In some cases, you have to agree not to open a position if you can't come up with trading ideas with a good risk/return ratio. It's like in the corporate world, it's better to avoid working with certain customers (who are bad payers, who take too much time, etc.) to focus on customers that really generate growth for your business.

Performance report: accounting for your trading activity

In a company, all your purchases/sales must be recorded in your accounts. This lets you know what the profit (or loss) generated by your activity is. The preparation of the company’s income statement and balance sheet also enables you to analyse your company in more depth by studying different ratios (interim management balances - IMG). This is called financial analysis. The results of this study lets you develop your strategy to increase your company's growth rate.

In the trading environment, the performance ratio determines the amount of your gains/losses over a given period. This performance ratio is similar to a company’s income statement. It summarizes all the transactions you have made on your trading account. You can then analyse your trading strategy by studying different figures and ratios (win/lose trades, drawdown, assets generating the most gain/loss, etc.). This enables you to evolve your trading strategy to make it more efficient.

The cost burden

In the business world, it is not enough to earn money to make a living from your activity. Indeed, your company must pay social charges, VAT, corporate property tax and Corporation tax, etc. If you pay yourself a salary, you may also have to pay tax on your income. These are all disbursements that cut into your business’s profits.

It’s the same with trading. If you generate gains from your trading activity, you are required to report these gains to the tax authorities and pay the corresponding taxes. The amount to be declared is entered on a tax form that your broker is obliged to send you at the end of each calendar year. If your objective is to make a living from trading or to ensure additional income with this activity, trading taxation is a point not to be neglected. It is the after-tax amount that is important.

Consider all scenarios

When you start a business, you must consider all possible scenarios, including going bankrupt. Despite the best preparation for your company’s creation, there is always an uncertainty factor. This may be due to a management error on your part, poor positioning of your products/services, or an external factor that you do not control. You should therefore consider, at the outset, that sales of your products/services might not be as good as expected or that your project may fail.

It’s the same with trading. You can select the best trades possible, in the end, it is always the market that decides. It's all a matter of probability. Your trading scenario may or may not come to fruition. That's why you need to manage your risk well on each of your trades. The loss of one or more trades must not endanger your account.

Becoming a trader or business manager: it’s the same battle

Many traders fail in the financial markets because they do not compare themselves to business leaders. Yet the mechanisms are the same. In both cases, there is risk-taking that may or may not lead to profit. You have to know how to question yourself and not bury your head in the sand when everything goes wrong. Success in both cases depends on good preparation and above all a lot of work.

In starting a business, people understand that you have to be fully invested to succeed. Unfortunately, the world of trading does not have this image. Novice traders believe in easy money. There is no such thing. If you want to become a trader, the right question to ask yourself is the following: Do you have the motivation to become a business leader in the trading world?

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