I started reading a new book on my daily commute this week. It’s titled Laughing at Wall Street, and presumably will detail how the author was able to make big money in the markets. I haven’t reached that far yet, so I’m not sure how things are going to unfold (I’ll do a full book review when I’m done). I’m pretty sure the focus is going to be on the stock market, but the stuff I’ve just been reading presents an interesting idea for forex traders as well.
Shortcomings in account funding
One of the problems many new traders have is funding their accounts to the level where trading actually seems worthwhile and doesn’t just take on the aspect of a Vegas weekend (“I don’t mind losing it all. It’s not that much money.”). Or, looking at things from a more negative – but unfortunately all too common – perspective, re-funding an account that’s suffered a major drawdown as a result of poor trading is required.
And even for traders with “sufficient” funding for trading purposes, it’s usually the case that more would be better. After all, the more money you have, the more money you can make. We can even bring funding a Trade Leaders program account into this discussion.
Saving your way to a bigger trading account
The author of the book has what I think is potentially a very useful way to add funds to his trading account. Basically, he sends the money he saves on expenses to his broker.
Let me share an example.
The author wanted to buy a new HDTV for his house. The model he wanted was priced at $2000. Instead of buying it right away, though, he held off for a while until the price had dropped to $1600. The $400 he saved on the television went into his trading account.
Now, you may not have a big ticket purchase like that in your plans, but you can certainly look at your budget and see where you can trim and what purchases you can defer to get a lower price. Most of us have indulgences we can cut back on to save money. They may not be large amounts individually, but when taken together over time it can add up, especially if you can then compound the money through successful trading.
The trick the author uses to encourage thriftiness in his own part is to not think in terms of what the saving is today, but what the will be down the line. He expects to turn every dollar added to his trading account today into $100 down the line. That may seem aggressive, but you get the point.
Don’t just throw money at your trading, though
As much as this saving-to-invest idea may be a worthwhile one to held grow the funds in your trading account, you don’t want to just throw good money after bad. If you’re still in the developmental phase of your trading, and haven’t yet established consistently positive performance, you should be trading as small an account as you can get away with trading. No sense losing more money than you must at the time when you’re most likely to see negative performance. By all means, use the savings trick (or perhaps something similar) to grow a trading stake, but put it aside until your trading performance warrants the extra funding.
Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.