This is the most frustrating misconception about Trading which makes my blood boil…
Since I’ve popped my head up above the parapet to become a financial educator, I’ve had a constant thorn in my side – Independent Financial Advisors (IFAs). In my travels during this time I’ve encountered and met hundreds of them and argued, debated and chatted with a lot of them. So I like to think that I’ve got a good grasp of how they think and operate. Now before I go and put my foot in it, I’d like to point out that I’m not attacking IFAs here. I have many IFA friends, I use one myself and I’ve given hundreds of thousands of Pounds of business to an IFA friend. So it’s just the mindless ones who frustrate me. The ones who stick to their sheep-like IFA mantra and form unfounded opinions on topics they have zero knowledge of like trading/alternative investments.
I could describe multiple interactions I’ve had with these ‘FCA Sheep’ but when it comes to the topic of Trading, this is a gist of the general misconception that they have:
“Trading is unregulated, risky and you’re just gambling…you can’t possibly tell what the market is going to do and teaching the public how to trade is just dangerous!”
Now in the early days, comments like this just made my blood boil. But after spending the time in trying to put myself in their boots, I can see why most of them think like that. You see, in order to become an IFA, there’s a long tunnel of hoops and many exams that they have to take. There’s a lot of information that they need to assimilate and so trainee IFAs just get their heads down in the books and learn whatever the FCA (Financial Conduct Authority) tells them to learn. Then when they finally become fully fledged IFAs, they have to then carry on taking more exams every 6 months. So in essence, the FCA is like Apple iTunes and IFAs are like Apple iPhones that need to always update. As a result of all the stuff they need to learn about FCA regulated investments and pensions pensions and pensions, in general, they just don’t bother in expanding their view. I find that they’re just very close/narrow minded and anything that’s not in their FCA bible, is risky, doesn’t work and shouldn’t be explored. So they just form an incorrect opinion on topics like Trading and Gold & Silver etc with little to zero knowledge of them.
So let’s just go through this frustrating sentence:
“Trading is unregulated…” – Correct. Trading is unregulated. But that doesn’t mean that it’s bad or dangerous. Investing in Gold is unregulated, but owning Gold has been the best store of wealth for over 5000 years now and has risen in price over 400% in the last 15 years and over 2400% in the last 40 years. However, even though trading itself is an unregulated practice, the brokers who you open up an account with are. This is where you need to be careful. Some brokers may be on the FCA list of approved brokers, but many operate outside of the UK and are therefore subject to their own legislation. So that’s why my students and I use FXCM as it’s the largest trading company in the world, it’s the only one on the Nasdaq and is fully FCA authorised and regulated and your money is insured up to £85k by the FSCS. Also, what’s really annoying is how the FCA are labelling people now. Basically, unless you’re a ‘High Net Worth Individual’ or a ‘Sophisticated Investor’, you’re not allowed to invest in unregulated investments without paying an IFA to effectively tell you not to do it! But here’s the kicker, if you earn up to £99 999 per year, you’re deemed an ‘unsophisticated investor’, yet if you earn £100 000 per year, you are! It’s bonkers!
“Trading is risky and you’re just gambling…” – I think that this is just the default stance that people take in general when the topic of Trading pops up. Again, I can understand why people think that as we’ve recently had the biggest market crash ever where people lost fortunes and the internet is also peppered with stories of riches to rags due to trading. However the ONLY key reason why people and IFAs feel this way is simply down to a distinct lack of knowledge. As we all know, people fear what they don’t understand and that’s just a defence mechanism born from our primate ancestors. Trading is only risky if you don’t know what you’re doing! Just like what I did when I first started out where I did a bit of Googling, opened a live account and then blew it within hours. Then repeated this process a few times! Trading is all down to risk management and you can actually be an average trader, but as long as you’ve got good risk management, you will still be profitable. In fact you can even lose 70% of your trades and still end up in profit. How is that risky or gambling like? The moment the odds are in your favour by just a tiny percent, in the long run, you will be profitable and this is far easier than you might expect. Not only that, you can utilise Stop Losses, so that on each trade you will only risk a certain amount of your capital. So your risk is mitigated! But even better, if your trade goes in your favour (and it normally does at some point), you can actually move your Stop Loss up to the level where you entered your trade so it’s a completely RISK FREE trade where you can’t lose any money! Then if it continues to go in your favour, you can actually lock in profit! How is this gambling? Or even risky? It’s only risky if you don’t have the right information, education and training!
“You can’t possibly tell what the market is going to do…” – False.Yes you can. Agreed, no one has a crystal ball and history may not repeat itself, but it does rhyme extremely well. As a result of this, certain markets move in certain ways and can easily be forecasted. But the trick is to just trade the low risk, high probability outcome trades. The low hanging fruit basically. So I only trade when I’m about 90% positive that the trade will go in my favour…guess what…I’m normally right. Then as soon as possible I move my Stop Loss to ‘break even’ and then lock in profit as the trade goes in my favour. But even if the trade goes against you, worst case scenario is that you’ll only lose your predetermined amount and for more advanced traders, there’s actually a way you can turn about 95% of your losing trades into profitable ones! The days of losing more money than you put in simply can’t happen now…
“Teaching the public how to trade is just dangerous…” – This really depends on what you teach the public. I’m personally of the opinion that 95% of trading training companies are cons/marketers. It’s these types of companies which are all over the internet and claim that you can make hundreds of Pounds per day from Day 1! This of course is grossly untrue and misleading. Yes, trading can enable anyone to retire or even semi retire within 5-10 years. Not 5-10 weeks! Plus most of these companies teach Day Trading (which is the devil for newbies). Day Trading is where you stare at your charts for 5+ hours a day, placing dozens of trades and then close up at the end of the day. This is the WORST type of trading one can do. Not only is it time consuming but it’s highly leveraged and you’ll get eaten alive by the High Frequency traders and Bank traders! So this is why I teach Realistic Trading. It takes less than 5 mins per day and is completely stress free. But as I said previously, it’s all about the right information, education and training!
Also, when you get into the rather advanced hedging strategies that you can do, you can turn pretty much 99% of all losing trades into profit or even break-even…it’s at this point that trading will 100% change your life forever…