Getting Started What can I make in my first year trading?

We get questions like this one quite often. We find that most aspiring traders don't have a clue as to what to expect from the market. Yet here they are, putting up their money. Most are going to learn the hard way. We have no idea in the world what you can expect to make in your first year of trading, or any other year, for that matter. What we can tell you is that without proper guidance and help, you are probably going to have some very bitter experiences. Why? Because your anticipations are almost completely wrong.

Futures traders, especially beginning traders, often open an account with unrealistic expectations of trading performance. These expectations could be formed by the sales literature for a trading program that emphasizes its profitability, by reports of success stories by top traders or by some brokers within the industry. In all cases, you are rarely made aware of the many other times when performances were considerably worse. In other words, you are a victim of selection bias.

Most advertisers of courses, systems, books, etc., will mislead you into thinking that you just can't lose if you buy what they are selling. We are talking here about hype, major hype - as much as the authorities will allow them to get away with.

Selection bias is a term well known within the social sciences and occurs whenever some undesired screening factor leads to a misrepresentation of a population sample. For example, traders seldom express their losing trades with as much enthusiasm as their winning trades. Consequently, a random selection of letters or phone calls received by a company that sells a trading program often will overstate the proportion of traders who are doing well. Sometimes the cause of the selection bias is not obvious. For instance, let's say that a trader who purchases a very expensive price and charting package is more profitable than another trader without it. The merits of the package seem obvious. Maybe not. It could be that the individual who can afford to purchase the package is better capitalized than the other trader and this is the reason for the better performance.

Starting off your futures and options trading experience with unrealistic expectations inevitably will lead to frustration and disappointment. It's better to face reality now. It will make life as a trader easier down the road. Here are just a few facts to dispel those unrealistic expectations.

  1. More traders lose money than make money. The figures are fuzzy, but it is 80% to 90% (maybe more) who end up losers and leave.
  2. Within the industry, only a small percentage of retail traders are profitable on a consistent basis. Moreover, if you are just starting out, you should expect to incur some loss strictly due to error on your part as you climb up the learning curve. Increased trading knowledge and experience combined with trading strategies that have superior risk/return characteristics can help put the odds of success in your favor. So, it is important to study the markets and educate yourself before trading or, alternatively, you can rely on the support of your broker professional. Another option you may also want to consider is paper trading. It's a viable option because it's a lot cheaper to make a mistake in a fictitious account than a real one.
  3. You will have losing trades. In fact, most of your trades will be losing trades. It is impossible to predict price movements every time. Even when the technical and fundamental factors are in agreement, the market often moves in an unexpected way. This can even happen several times in a row. For this reason, it is always important to make sure that loss is limited on every trade and that you have sufficient trading capital to withstand several losing trades without being taken out of the game.
  4. Don't expect to become financially independent. It's unrealistic to expect a small-sized account, especially one under $5,000, to generate consistent income to replace regular employment. While this may be possible for a very low percentage of traders, it does often require high-risk trading. High-risk trading means that if you are one of the many who lost money, then you probably lost your money very quickly and you may end up owing even more money to the clearing firm. High-risk trading should be avoided, especially by the beginner. Rather, concentrate on low-risk, low-frequency trading and devote appropriate effort to increasing your knowledge and understanding of futures trading.

Keep in mind that, as a beginner the emphasis should be on learning and proceeding slowly. By that, I mean practicing in a paper trading account and confining your trades to those that have low risk. The expectations of huge profit that many beginners start out with may be realized, but only after you invest the requisite time and energy and only after a slow and realistic start.
 
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SB is an easy way for most people to get into trading cos of capital requirements and the fact that 1lotwonder feels it is not his cup of tea as a 'supposedly experienced trader' does not mean it is essentially a bad vehicle for trading. A good trader would always make money no matter what type of vehicle he/she chooses to use cos the key is the ability to trade an instrument.
 
1lotwonder said:
sharp observation. most dont see the obvious do they?

reminds me of something that happened about a story from 20 years ago - something to do with comex directors and the regulation of silver contracts (i think)

ring any bells?

for the record - i have just read the thread that people pointed to about being priced out of the market. what a giggle. i am pleased to see that despite this article and the comments frugi made about volume, last sale etc and other data not availableto sb - people still feel happy spread betting ! this always restores my faith in human nature and the fact that there will always be people with money to throw away for the sharper folks to pick up! so i willl say no more about sb.

ive also just noticed a feature of this web site! roberto - welcome to my ignore list. now i wont get so hot under the collar.
Yes, very busy at the moment - only have time for a brief reply.

This story you refer to involved the Bunker Hunt brothers of Texas who set about trying to corner the world market in Silver. They accumulated a vast commitment, and then the rules were changed suddenly, causing them huge losses and near bankruptcy. If you surf the internet diligently, the story is bound to be tucked away somewhere. At the time it made headlines right across the press, worldwide. I remember seeing it but cannot and do not remember all the details of the story.
 
1lotwonder said:
i wouldnt have thought the 'regulation' offered to tiny nickel & dime sb'ing folks is much use!
Then you'd be mistaken.

The reality (as you can verify for yourself) is that it's the best and most consumer-friendly form of trading regulation available in Europe.

FSA regulations are adhered to rigidly by all UK licensed spread-betting operations. Disputes are swiftly resolved. The regulators' powers can be swiftly and flexibly invoked. Endless examples of this are in the public domain.

Personally I trade Forex for a living and (like others who have posted here) my main reason for having switched from DA to spread-betting when I eventually became profitable was to reduce my overall annual tax liability. The regulatory factors were just an unanticipated and very welcome bonus.
 
Having previously lost at both.I lost more with direct access.So as long as you're winning,you can win with both (longer term with SB).
 
Roberto said:
Personally I trade Forex for a living and (like others who have posted here) my main reason for having switched from DA to spread-betting when I eventually became profitable was to reduce my overall annual tax liability.

Quick ? Roberto. someone once told me that trading FX resulted in no tax liability, I assumed he did it through a normal trading platform. (I kenw nothing of spread betting at the time, so I assumed he traded with a similar settup to IB which to me was "normal") If one was trading FX in this way, DA, would he be liable to tax on profits, same as equities?
 
roguetrader said:
someone once told me that trading FX resulted in no tax liability
Don't understand that, at all. My suggestion is that this info's perhaps mistaken?

roguetrader said:
If one was trading FX in this way, DA, would he be liable to tax on profits, same as equities?
For sure - as far as I know anyway.

If classified by the Inland Revenue as a "professional punter" (or however it is they put it), would be eligible for CGT on all but the first £8,200 per annum, and CGT is traditionally rather more difficult to offset things against than income-tax is. Only advantages are the exemption-figure ("personal allowance") which is higher than the one for income tax (you can use both in the same year, every year, of course), and the avoidance of N.I. while still being entitled to N.H.S. benefits and stuff.

None of the above applies uniquely to Forex; would be the same for anything.

All IMHO and I'm not an accountant!
 
roguetrader said:
I suspect he spreadbets then
Would imagine so. Once you're steadily making more than a certain figure (which will vary a bit from person to person depending on other circumstances), it would be crazy not to, really, for a UK-resident. Again IMHO!! :)
 
For the last time (i hope):

if you are going to reply to peoples comments, please make them:

a) valid
b) polite

Everyone will know who this post is directed to, i'm sure. Its not about taking sides, its about remaining courteous - which, if I remember, I asked people to do a few posts previously.
 
I think the better question is 'how long did it take you to make £100k/year consistently and by how much does your bottom line vary in % terms from year to year on average'.
 
I think that the question in the case of this article is rhetorical, the whole question is wrong, it should be "how much can I stop myself from losing in the first year?", but it never will be. The point is that when people first come to the market, it is to make money, therefore most people want to know how much they can really make, of course the truth is that not losing money in the first year is a great success, let alone making money. I think that that was what the article was trying to point out.

Personally I don't think that the message will ever get through. When I first started trading I believed that I would make money right from the word go, and hearing otherwise didn't make me think any differently. But after a while, the realisation that this game is much harder than it looks starts to come home, and the objective begins to turn from wanting to make money to not wanting to lose money, and that, ironically, is when the real money begins to start flowing. IMHO :D
 
Danfreek, you are right. I am accused of banging on about character, about having rhe right character for this profession.

The fact of the matter is, the ability to recognise, modify, alter, change, reverse whatever you may choose to call a posture with regard to self control and an acceptance of results from a point of view allowing the viewer to use these results constructively to achieve positive alternatives, is not just dependent on intelligence and the ability to recognise, it is dependent upon having the right character to be able to allow oneself to take advantage of all trading experiences, including blunders.

That is the root of the problem, and not the ability to reason and logically deduce what is right and what is wrong, but the ability to act upon this.
 
SOCRATES said:
That is the root of the problem, and not the ability to reason and logically deduce what is right and what is wrong, but the ability to act upon this.

I can not agree more! :D
 
Yes, but the problem is that people get offended when they are told this, which is the cruel truth, blunt, and to the point, because for some reason they view it, unjustifiably as a sort of personal affront.

If they were able to leave their personalities out of it, and get cracking on the root of the problem, they would all succeed.

It is the discomfort of doing so, or rather the percieved discomfort, that acts as a barrier to ultimate success.
 
I have heard many times that that is the reason women often make better traders than men, the ability to objectively focus on the problems without letting the ego get in the way.
 
danfreek said:
I have heard many times that that is the reason women often make better traders than men, the ability to objectively focus on the problems without letting the ego get in the way.
I've not read any research which suggests women have greater capacity than men, or vice versa to focus objectively.

I think we may tend to hear more about successful women traders as we do about successful women in any area of commerce & business because they are in the minority. They stand out.

I'd agree in general, from my experience, successful women are very focused. But then, so are successful men... :cool:
 
I have a minute between proceedings.

I would like to take the opportunity to salute the 3 lady members of this website who are my students. I commend you for your clarity of vision, discipline and discretion.

There is no need to post as you have earnt your right to anonymity and personal freedom which has to be respected.

If all traders had your abilities and behaved like you do there would never be any arguments, only constructive discussion and progress.

Also what is remarkable about you three is not only your performance but also the fact that your ability to embrace all of the agenda and not to stray one inch into the temptations placed in your path should stand as an example to the men.

This is as a consequence of your complete openmindedness and willingness to progress, through acceptance rather than confrontation.

Kindest Regards To You Special Three .X.X.X.
 
You may well try to make jokes about these ladies. But these ladies always have the last laugh. In fact they are able to make many men who aspire look very silly. In fact they sometimes succeed in frightening even me, and that is saying something. So don't knock, take your testosterone elsewhere, this is not the correct place for it. I am not allowed to tell you more, all I can reveal is that it is truly awesome.

KInd Regards.
 
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