Borrowing for trading.

newtrader101

Well-Known Member
#1
Hi trader friends, this is a hypothetical question, but maybe true in some cases.
A trader starts to trade with own capital. He loses most of it. He analyses and learns something. Again he collects capital and begins trading. Loss again, for whatever reason. This process repeats. When his money is finished, he takes from his mother/father/brothers/ relatives/friends etc. But unfortunately he doesn't seem to get it right. While the people around are still supportive, is it proper for him to borrow again from them?
Shouldn't he be trying to earn his capital by himself? By any means.
I feel the support from others, however intimate they may be, may not last long.
What do you think?
 
#2
Hi trader friends, this is a hypothetical question, but maybe true in some cases.
A trader starts to trade with own capital. He loses most of it. He analyses and learns something. Again he collects capital and begins trading. Loss again, for whatever reason. This process repeats. When his money is finished, he takes from his mother/father/brothers/ relatives/friends etc. But unfortunately he doesn't seem to get it right. While the people around are still supportive, is it proper for him to borrow again from them?
Shouldn't he be trying to earn his capital by himself? By any means.
I feel the support from others, however intimate they may be, may not last long.
What do you think?
Backtest your trading system on previous years data and convince yourself that the system has an edge and it will make money in the reasonable time...after that start trading on small capital and it must be profitable in next 6 months.Once you are convinced ( really convinced with real profits and not wishful thinking and Excel sheet profits) then only borrow money from relatives or better still earn your own money and trade.

Analyse your losing periods and trades and find out the real reason for the losses.....

Smart_trade
 
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newtrader101

Well-Known Member
#3
Backtest your trading system on previous years data and convince yourself that the system has an edge and it will make money in the reasonable time...after that start trading on small capital and it must be profitable in next 6 months.Once you are convinced ( really convinced with real profits and not wishful thinking and Excel sheet profits) then only borrow money from relatives or better still earn your own money and trade.

Analyse your losing periods and trades and find out the real reason for the losses.....

Smart_trade
My main doubt is about borrowing, and it seems to be quite prevalent among traders.
What actually inspired this qn was I used to take my parents' money in my losing periods, and this was actually harming me.
Recently I've known a kid being pampered by his mother who buys him all his demanded gadgets. He trashes them.
 
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#4
My main doubt is about borrowing, and it seems to be quite prevalent among traders.
Trading on borrowed capital is dangerous....I have seen too many cases of traders who were thinking that they have figured out all about trading and borrowed money, lost it, borrowed again.....again lost it.....it continues till it becomes unbearable one day and the bubble bursts ........if the trader is not profitable then such borrowed money trading always results into a bigger tragedy....
 
#5
My main doubt is about borrowing.
Borrowing for any purpose implies an intention and a timeframe for returning it. It also implies interest payment, whether the lender specifies it or not.

Repeated failures can happen in any business, and each time it hurts the psyche further.

The right or wrong of borrowing or lending differ in each case. In this hypothetical scenario, the person should also count his good luck in having a strong support system. This should give him some sense of security and calm to try another go at trading, or some other business / job. Either way, it's time for him use the support system to take a break and reflect on his options available for earning his living.
 

trader.trends

Well-Known Member
#6
Trading is one field that allows a person to start small and build the capital if the trading system has and edge and the trader has the discipline to stick to the system. As ST said, backtest your system and be sure that the system has a real edge even if you remove the outlier events. The system also needs to be consistent over a period of time. An entire year cannot be declared profitable if 10 months in the year have been losing months. Calculate the drawdown of the system and assume that the day you start trading the drawdown has started. Can you still stick to the system? Once you have sorted out the technical and psychological aspect of the system, then trade it with the least minimum lot size possible.
If you are in this for the long haul, then scalability will come with time and it can be done with accumulated profits. You don't need to borrow money at all for it. If borrowing comes easy without any questions asked, then there is no value to that money and one is generally not that careful with it as we would be if it was our earned money. My two-bit.
 

TracerBullet

Well-Known Member
#7
Wrong to burn money when you dont know if you have edge. Trade small, and that does not need much money esp for stocks.
Once you do have an edge that is proven live, and you really must be sure of that in real numbers, then maybe its ok to borrow some if capital is really lacking, to jump start your returns. And better earn money from job etc also if possible.
Small capital otherwise will need lottery type risk management to grow, with risk of ruin - or a lot of time.
 
#8
Losing money so many times shows lack of knowledge. I think one should learn from their previous mistakes. People might be supportive but there is no point in borrowing and investing if losing money all the time. He/she should learn more about trading and risk management. Better to have a mentor who can guide you in the right direction.
 
#10
Borrowing is not a suitable idea for trading as it will also create a liability for you, it is better to wait, invest only when you have sufficient capital.
 

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