I have one great thing going for me and one not so great. The great thing is my trading. A couple months ago I lost more money than expected and it really hurt. In fact, it crippled my ability to trade with real money. However, during the end of that experience I learned more than I ever have over the past few years. A new strategy emerged and I have been paper trading it down to a science. I am highly confident that I could make money month after month executing this. One important aspect of this strategy is the risk management side which I failed to follow through with in the past, and so I lost money. So I have everything in place. The only problem is lack of capital. With my current job, I can save some money but not that much. Here comes my question: is using any type of credit for funding ever a sound idea? My returns on paper have been fairly consistent, and I would not treat real money any differently. It is ingrained in me. I figured using a credit card to supplement savings could work. I would make money on the borrowed funds, and pay back the original amount every month. I would be paying back basically a set amount, but every month my account would grow in size. Soon enough I would not even need credit to fund my trading. What I am talking about is seed capital for my trading career. A classic capital structure mix of debt and equity. What does anybody think of my views on this? D
You have completed chapter one. It will take another 5 chapters before things will really work out. Do not borrow money from CC.
If it's a small amount sure (i.e. $200 in micro FX), but if it's trading equities/futs on credit cards, you got another thing coming.
I did this exact thing about three years ago, but back then credit was a lot easier to come by and it wasn't that hard to get a 0% credit card for 12 months with no or low transfer fees. Not too many of those deals around now, it can still be done but it will cost you a decent amount of money in fees and interest. Even though I did this and it worked out, I paid back all of the money within a year so I didn't have to pay interest and made enough to have my account fully funded. I don't recommend it because it is a lot of pressure and if you lose the money it will be a tremendous debt to pay back. But in the end it is all up to you and how confident you are in your trading. For me I just decided I needed to go for it and make a change in my life and it ended up working out.
What about the notion of matching my personal equity? For instance, I have $1000 and I borrow $1000 (at most) for the month. I make a 20% return on the $2000 and end up with $2400 after one month. I then pay back the $1000, leaving me with $1400 in personal equity. I then repeat the process but this time I borrow $1400 and I begin the month with $2800. This cycle continues until I hit $10K or so in personal equity and then I can proceed to build my capital without having to borrow anymore. My risk would be limited because my account would have to suffer more than a 50% loss for me to not be able to repay the previous credit card balance. This simply would not happen because of the risk management practices that I have in place. Any comments would be appreciated.
You need a lot more than 5K to properly trade period. Playing with such a small account will get your financial neck bone disconnected. Learn and practice all you can. Save 50K and then perhaps it could be done. Playing with couple grand, or cc financing will just get you mentally raped by the markets.
How are you gonna deal with the emotional and psychological issues when going live? Taking out loans to trade will just make it worse.
.... is using any type of credit for funding ever a sound idea? I'd do it in a heartbeat. How can I say that? Because I did it. Shit don't scare me. Depends how you look at credit. Go buy a car for 20k drive it off the lot, you've already lost money. Borrow money to take a vacation, 5k, what do you have at the end of the week? it's all relative. Borrow the money. Invest in yourself. If you lose it, pay it back and do it again, till you get it right. When you reach that mountain top at the end of your journey, beats the hell out of saying I "shoulda" done this or shoulda done that. Most people regret what they haven't done. Go for it. Times a wasting.
I completely agree, nutmeg. The deal breaker for me is extended paper trading of my system. If I can prove that I can be consistently profitable, why not go for it? I also think it is silly to treat money differently depending upon its source (even fake money in a practice account). I treat it all the same, whether it is my personal savings, borrowed money or fake money. Matching my credit card borrowing to my personal equity on a monthly basis will not mess with my psyche.