So recently I opened a robinhood account with $100 and got the question from some friends as to why I would even bother trading with such a small amount of money.
In order to answer that question, I need to explain where I’m at in my trading journey and how I got here.
As many of you know, I haven’t traded a single share of stock since late 2013. I spent the majority of 2013 trading a small amount of money and learning about markets the hard way, by replicating the many mistakes the books and materials I read warned me against. In late 2013 I began blogging, developing a social media presence and honing in on my process. The past 15 months have been similar in nature, less the real trading, as I’ve spent every free moment studying, as well as creating and sharing my analysis. Additionally, I had the privelage of interning with, and learning from, some of the smartest market participants out there.
That brings us to today.
The sole reason I’ve not been involved in the market is because I believe that one should only trade with money he/she can afford to lose. I wasn’t, nor am I currently, in a financial position to risk significant capital and I don’t expect to be for the forseeable future. Any money I currently earn from my internships is restricted to funding the CPA/CFA exams/paying down student debt. Once I start my full-time job in the fall of 2016, I’ll be paying off student loans and plowing money into my retirement accounts. Allocating capital this way is a personal choice which comes at the expense of being able to trade right now, which I so badly want (not need), to do.
So let’s get back to the question I’m asked so often: Why do I bother to follow markets, further develop my trading plan, read new material, network, and now trade a robinhood account with the amount of capital that most real traders use to order lunch? Why on earth would anyone want to spend hours per week preparing to trade knowing that they have no immediate financial incentive to do so?
The simple answer is that I know the traits I’m developing now, on a small scale, will prepare me to take full advantage of the opportunity to trade on a larger scale when it presents itself.
So what exactly will trading with a small amount of money teach / reiterate to me?
1. Becoming comfortable with having capital at risk, again.
2. Staying focused on, and only trading, the best setups that fit my process.
3. Managing entries / exits.
4. Dealing with market specific things (orders not getting filled, trade/cash settlement, brokerage issues, etc…).
Ultimately, the steps I’ve taken up to this point, and will be taking in the future, will help me develop the confidence necessary to execute my trading plan without hesitation.
The Bottom Line: Do I sometimes feel silly or get frustrated with the extent of my participation, or lack thereof, in financial markets? Absolutely, but I constantly remind myself that the journey of a financial market participant is a life-long one and the choices I’m currently making involve delaying immediate gratification for a more substantial long-term gain.
If you’re pursuing a goal, remember that the process is more important than the result.
When I do have the opportunity to implement my trading plan on a more significant scale, I’ll be ready to nail it.
As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.