February 9, 2015

Running your own trading group is not as simple as investing in some trading platforms and letting the rest take care of itself. As with any business – and arguably, even more so with financial businesses – there are rookie mistakes that we can all make along the way. Of course, only when a trading group is up and running will all of them become apparent but here we outline some of the more glaring rookie mistakes that owners of trading groups often make.

Not Emphasizing the Importance of a Strategy

The first part of your entry strategy is your exit strategy. This is the easiest part of trading to get right and yet it’s probably also the biggest pitfall for most traders. Every trader faces a moment when the market moves against their trade. It could be that you’re “right” on where the trade should go. The problem is that you can go bankrupt being “right.” Then, they double-up on their position and everyone knows what can happen next.

Before these circumstances occur, it’s important to have a rigid strategy in place. As the leader of a trading group, it’s important to remember that the individual strategy of traders affects their success, which in turn, will affect your own. Emphasize to them again and again the importance of maintaining a strategy. Of course, you can’t enforce it on their trading accounts, but you can remind them of it. If they forget, ultimately, you lose.

Expanding Too Quickly

The beauty of technology is in its scalability. Even a small team of traders can generate millions in a reasonably short period of time should their trading strategy be effective. The problem is that while technology has made many types of businesses – trading businesses included – scalable, the principles of beginning a trading group are time-old and quite a bit more mundane.

To begin with, new traders do not generate revenue for the firm by themselves. Depending on their level of experience, they may require quite a lot of hand-holding, customer care or even technical support. Looking at this practically, if you’ve managed to attract 10 clients to your trading group with a sophisticated and convincing webinar and in the middle of trading, you’re hit with five customer support requests and three technical support requests, what do you do? Well, what can you do? The way to avoid this scenario is to grow at a sustainable rate.

Not Attracting Enough Traders

What’s worse than expanding too quickly? The answer is, quite simply, not expanding at all. There always exists a danger in making any product or service that the clients just won’t arrive. To reach a critical mass – and only your cost and revenue structure will show you what this is – you will need to hit certain targets. And once those targets have been achieved, they’ve got to be sustained.

The way to do this has been outlined in previous articles on webinars and building a customer base. Perhaps even before building proprietary software, you should be asking yourself, “if the software was ready today, how many customers would I have and how much money would I be down?” Be self-critical; it’s too easy to believe that a good piece of software is the path to millions for a trading group. The reality is that success depends on a variety of factors including a good product, good marketing and most importantly? A critical mass of traders.