I’ve recently spoken with some people considering becoming traders but have doubts whether they should take a step towards this personal goal. The most common doubt I heard was that they see trading as too risky, and they were wondering if they should invest their time and money in “safer” ventures.
Before even discussing the risks in trading, which there are, in fact, many risks, let’s talk about other businesses. Isn’t risk becoming an entrepreneur and starting your own business? Of course, it is. How many studies have we seen of small entrepreneurs who had to close their companies just a few years after starting their own business? Think about restaurants you don’t see anymore, stores that are now closed, and service or product companies that went bankrupt.
Is being a trader risky? Yes, certainly. But risks will always exist in any decision we make in our lives, whether it is choosing a college, getting married, changing jobs, or starting a new business.
I believe that one of the big reasons why people see trading riskier than other businesses is because of the many stories of failure in the stock market. There is, in fact, some stats that show that more than 90% of traders lose after 12 months of trading.
It is essential to understand this +90% failure rate better. Within this group, we’ll find the following type of people:
- Those who are lazy and start trading without putting in the hard work;
- Those who are deluded and have an illusion that will quickly make a lot of money;
- Those who are impatient and want immediate, overnight results;
- Those who are irresponsible and try to make money by taking a huge risk using the leverage offered by brokers;
- Those who are gamblers trade the markets with the same attitude as someone playing in the Casino.
Do you see what I mean? All those people belong to the +90% stat!
There are, of course, other reasons why most people lose that we can discuss in another article. But the truth is, people with such characteristics would fail in trading, and basically in any business you can think of.
Unfortunately, we don’t have a stat to show the failure rate of those who try to become traders the right way. Those who are not lazy, very responsible, have clarity, are patient, and trade with a game plan. Although we don’t have such a number, I’m sure you agree with me that it is way lower than 90%, right? Maybe 50%? 30%?
Whatever the number is, the risk of becoming a trader is way lower if you start this new business in the right way, take care of your trading education, and build the foundation to have a solid career.
And when we talk about risks, it is also essential to mention the opportunities.
When we look at the benefits of someone who decides to trade for a living and make it, we can debate whether the advantages of a “safer” business venture such as a new restaurant, store, or services company are more significant than becoming a consistently profitable trader.
- You can be your own boss
- You have freedom of time
- You can potently live anywhere, having geographic freedom
- You can generate an extra income
- You can reach financial freedom. Although you may need other sources of income for that (which can be funded from trading).
There are other benefits too. The initial capital required to start a trading career is way lower than creating a new company.
And if things go wrong in trading and you can’t become a consistently profitable trader, providing you have a good risk management plan, you will not lose much. So, your exit plan from the trading business is very straightforward. Which, sometimes, can be a massive headache for someone who built a traditional business and now has to deal with contracts, terminations, lawyers, pay debts, and so on.
Is there a risk of becoming a trader? Yes, of course. If you are willing to take this risk, my advice is: try the right way, and your risk of failure will be much lower than what we see.