Guide to becoming an exception trader and or investor!
Understanding what “wealth” is
The most universal definition of wealth is, “the state of being rich and affluent; having a plentiful supply of material goods and money”. Although this definition is good, when Alphas Edge refer to wealth we are really referring to a lot more than just material goods and money. We at Alphas Edge see wealth in its simplest and most complete form, having a surplus abundance of both tangible and non-tangible things. Although the differences between these two definitions might seem trivial, understanding it will be crucial for you to become a master in wealth accumulation. Not all rich people are wealthy, and many rich kids delivered with silver spoon are poor wealth accumulators.
We are all born within various degrees of instinctive wealth accumulating traits. A vanilla example of such trait is collecting things. You ever wonder why when people like something a lot they start to gather it. I remember as a young boy collecting all kinds of things like rocks, coin, bottle caps, baseball cards, etc.…accumulating things that I liked make me happy no matter how worthless those things were. I’m explaining it this way because I need you the reader to understand the wealth is not just about money. Wealth is so much more. It has a direct impact on how you live your life, how you feel as a person, and how others feel about you.
“Understand the Economic Principle”
Understanding the principle which drives the economy greatly enhances your ability of selecting a good investment. Below is a 30 minute link from Bridgewater Research and Press that explains the economy from a simplified and logical perspective (by Ray Dalio). http://www.economicprinciples.org/
“Need Money to make Money”
Unless you’re a Bernie Madoff, when it comes to trading and investing you really need money to make money. How much money you need depends on your lifestyle and goals. If you want to make a living off of trading alone, you are probably looking at above 500K of capital. If you want to start day trading, I suggest at least 5K.
“Practice, Practice and Practice”
The first step in becoming a trader or investor is to practice. To do this, you don’t need any capital. There are many websites you can go to practice trading on virtual accounts without putting any of your hard earned money at risk. Just remember that many of these accounts aren’t real time and don’t take into account the cost of the trade. I practiced for 2 years while accumulating enough play capital and experience to feel comfortable opening up an online broker account. It is the best way to learn and familiarize oneself with trading and investing.
“To Margin or not to Margin”
When you open a broker account, one of the first important choices you need to make is in regards to margin. Your selected broker can offer you margin that typically matches your account value. So, if you open an account with 50 thousand dollars, you will be able to trade with 100 thousand dollars. I STRONGLY advice to sign up for margin to avoid free riding but I do not recommend using margin to leverage your trades. Free riding is when you trade several times a week (usually 3 times within 5 days) and you buy and sell stocks before your first trade is settled. If you are going to day trade, jump in and out of the market many times a week, margin is the right way to do it. Different brokers offer different level of margin depending on the level of risk you take. Some brokers give you significantly higher leverage if you have a balanced portfolio. We don’t recommend using margin to trade or invest for several reasons. Margin is borrowed money, so there is a cost associated with it. Also, when you are on margin, the loss is magnified greater than the profit.
“Learn the different equity types”
Spend time reading up on all the different types of equities. We suggest you start with stocks, options, futures, commodities, bonds and ETFs. Also, learn about the different currencies and form an understanding where to they fit in regarding the overall global economy. Before you start to trade with your real capital, it is important for you to understand what it is you’re actually trading and investing in. Besides understanding the equities, make sure to understand their relationship to each other.
“Choose a broker”
Now it’s time for you to read up on all the brokers carefully. Think of a broker as your supermarket, you want to find a broker that offers the products you want to buy at the best price possible. Select one that best fit your needs. Some of the things to keep in mind while choosing a broker are; am I investing or trading? What equities am I trading or investing in? Do they have an office so I can talk to someone face to face? What is the cost structure, per trade or flat fee? How stable are they?
“Start Trading / Investing”
Now you are ready! The key is just to do it. Start small at first and increase as your experience increases.