So you wanna be a trader?
9 March 2008
What better time than now to release this article? This time when bears have trampled on the safety gates give a clearer picture of the hell and drought that ensues when times are bad. Sure, if you're offered the chance of unlimited earning potential and everyone will say yes and ignore the consequence of a possible bear, but let them experience the bear head on and they will think twice.
The challenge:
Giving up your 9 to 5 job and trade for a living.
If you're weighing the odds, what you're earning in your job is what you're about to give up and hope you can make more of in the stock market. The trick is having enough money to start with in the first place. This could also mean taking in a job first while getting a knack for trading the stock market on the sidelines to see if you're up for the job.
The concept of "enough money" is not even subjective. It is a fact that One can start with 50,000 or even 100,000 or more, as long as you are young enough and have enough time to learn, and not much bills to pay.
Or would you just rather start each year already knowing how much you're going to earn via your wages and bonuses?
What it means:
The financial freedom of being your own boss, working from your own space, and earning a decent percentage no matter what capital you put in!
Going up against the stats:
It's estimated that as little as 5% of active traders are ultimately successful… and yet the number of new traders entering the industry continues to grow each year. With such an astounding failure rate one would ask: “why are so many new traders lining up to try their hand at this difficult occupation when the failure rate is so high?”
The answer?
The stats are virtually the same in a 9 to 5 job, or in your own business anyway. How many people do you know succeed greatly in their endeavors? Yet how many are just trudging along (isang kahig isang tuka)? Sure some may have milked the cow in the recent bull, but the story does not end until we hit the grave, and therein lies the ultimate judgment.
What are the requirements?
Either one of the two:
Youth: Fresh out of college will do, or early 20s will do. This is speaking from experience. When you are younger, you have more time to commit mistakes, and less expenses, and a big chance that you have no family yet that depend on you. Hence, the learning curve of the experience of sure-to-come-losses will bare less strain on your psyche.
Elderly but with enough saved: of the two, this is the least recommended. You could lose your shirt while you're 50something and above, so how the heck will you start over? Let me change that to "Elderly but with a whole lot saved".
Determination: Belonging to one of the above requirement will not ensure success if one is not determined to stay on the stormy sails. You quit, you lose forever. But staying on the business does not mean having a position all the time.
The downside:
- Mind numbing, gut wrenching losses than can make you apathetic to personal wealth fluctuations.
- Flak from old fashioned citizens who will remind you to stay out of stocks because it is gambling. When I was starting out, I got no support at all for my chosen career. In fact, my mom stressed that I should not get her friends and relatives for clients. Today, she smiles and states that I should not choose my clients and entertain everyone.
- Contrary to the aforementioned notion that stocks are gambling, many fail to recognize that it is a measured risk, and like most business endeavors, if you don't weigh your options properly, then you gamble.
- Trying to find someone who will marry you while you're still learning the ropes and riding a roller coaster of net worth. How will you explain your livelihood to your would-be in-laws? Don't get me wrong, women will line up to marry a very successful trader, mind you!
- Travelling this road and still fail in coming up with your desired targets before you're too old. Again, this is a danger in any business or career endeavor.
The ticking clock
Depending on your ambitions on life (whether you want to marry, raise a family, buy a house, a car, another wife, and other financial investments), you have your own personal ticking clock in the form of your biological life. So here's the deal: learning curve, size of funds, all juggled to pressure you to perform well before you're too old to manage stress and ultimately leave this earth.
There are only so many bull and bear cycles one can experience in a lifetime. I am personally only on my first real bull. I don't count the bull that was happening when I entered the market because I was only learning the ropes when the bull suddenly technically ended for me last 1997. As for the bear, this will be my second bear, if it does indeed pan out to be a full blown bear.
Some Mechanics.
Costs Of Trading
Documentary stamp tax. DST. The documentary stamp tax is charged to the buyer on every purchase transaction. There is a law that suspended this fee temporarily to attract volume, but this special free pass expires at year 2009. Doc Stamps used to be computed .0075 multiplied by the par value, multiplied by the number of shares. (.0075 x No. of shares x Par) means stocks below par will cost you more doc stamps, and stocks far above par will cost you very little DST. For a cost that should be a simple literal Stamp on your paper for "processing", it makes no sense to vary the DST depending on its par and number of shares because each certificated transaction could be placed in just one certificate, whether the stock purchased is minimum board lot or in millions of pesos.
Stock transaction tax. Sales Tax. The stock transaction tax is charged to the seller for every sale of stocks listed and traded on the Exchange at the rate or ½ of 1% of the value of transaction, in lieu of the capital gains tax.
Commission Earned from Trades for clients. Every certified securities representative (who took the SEC test and passed) is entitled to commissions for purchases and sales entered into via his chosen brokerage, whose amount is not fixed but depends on arrangement with the brokerage house.
- Each buy and each sell are charged commission fees.
- Commission fees may not go lower than 1/4 of 1% (or .0025), and may vary above this.
- Common fee amounts are: .0025, .005, .01 and sometimes rarely higher than this.
- This translates roughly for every 1 Million Php traded: .0025 = 2,500.
- If your brokerage gives you 50/50 sharing, then you will get a gross amount of 1,250 from than 2,500 commission, which will be subject to BIR tax.
Income from self Trading. Oh, this varies greatly. During bear markets, if you keep insisting on unplanned positions, be prepared for unplanned losses. In a lukewarm market climate, earning around 10% per month would not be that far off. In a bullish scenario, you could easily double your capital in less than a year! So the trick would be to be like the ant who makes hay while the sun shines, and save enough for the snowy winter!
So from those computations, you can already glean how much clients you can bring in, and how much % of your own money you can possibly make in a month, and if you're willing to take the risk and trade it all with what you're making right now. So go make that choice!
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Im still in boss. Ill be taking my cfte exam this april and will try to align myself here in Singapore with a financial company. will work myself up and hopefully accomplish my self as a trader or an analyst. i literary bet my life on this, wont back up now. i see 3 years of down time sharpening my saw.
so how do i become a trader on the floor? are there any publicly announced job openings for being the actual stock broker?…
not to speak for these brokers, but during the 90s, citiseconline and i.b. gimenez were aggressively hiring. in the present, i’ve heard hdi securities and accord capital welcome new stockbrokers. you could also keep an eye out for news ads. one thing for sure, you will have to take the CSR certified securities representative test of the SEC to be officially eligible to buy and sell securities for others.
Hmm… do women still line up to marry a married trader?
hahah. no comment