08 Jul | Business Turnaround Tips for Traders and Investors
Being a full-time investor or trader can be one of the most stressful and frustrating careers, but it can also be one of the most fulfilling. Unfortunately, many people give up prematurely after falling into debt and making a few wrong decisions. If you’re not so willing to go down without a fight, consider the following 4 turnaround tips that could help you slowly return to making a profit:
1. Gain a Better Understanding of Risk Management
Trading and investing is basically a form of gambling, and just as you would at a casino you can control how much you’re willing to put on the line at any given time. Choose a percentage of your available funds that you’re willing to spend on an individual trade/investment and stick to it.
For example, if you only have a £1000 investment budget, and your maximum risk percentage is 10%, then you wouldn’t devote more than £100 to a single trade or investment. That way if you take a complete loss you’d still have the other £900 to work with, at which point you wouldn’t want to risk more than £90 at a time. This is a very fundamental risk management strategy that many amateur traders, investors, and gamblers use to avoid “going into a hole.” Forex traders usually use a much more conservative maximum risk percentage (i.e. – 2% of their forex account).
Chances are, if you’re in debt right now, you probably took too big of a risk at one point or another. Even though making a large profit in a single attempt may seem tempting, finding the small successes and then scaling them up is the key to staying financially secure.
2. Consider Using a Different Broker or Advisor
While the differences in broker fees are is usually not enough to be the sole cause of a trader’s downfall, excessive swap rates and Bid/Ask spreads can add up to a significant loss in the long-term, especially when you’re trying to make a profit on currency interest rate differentials (i.e. – a long position on AUD/JPY). Likewise, if you’re investing in stocks and the advice you’ve been following is not bringing satisfactory results, it may be time to consider the opinions of another advisor.
3. Know When to Invest Instead of Repaying Debts
Although repaying some or all of your debts in one lump sum may seem like a good idea, sometimes investing those funds instead would be a more beneficial course of action. For example, if you have £2000 in outstanding debt but only have £3000 in expendable funds, it may be wiser to contribute most of that to a carefully planned investment strategy while making the minimum monthly payments on your debts to protect your credit score.
If the annual return on your investment will be greater than the amount you’ll be spending in interest on your outstanding debts over the next year then investing would definitely be the preferred option. Remember to consider the cost of taxes and other extracurricular expenses when deciding whether to invest your funds or spend them on outstanding debts.
Author Bio: Keith Tully is the managing director with Real Business Rescue, a UK-based firm that provides business turnaround advice and assistance to indebted companies.