Starting a trading business is similar to starting any small businesses.
We would like to focus on a specific type of trading, the quantitative trading or systematic trading
Capital requirements
It is recommended that we start with a small, limited investment of about 50k. A good practice like any small business is to bootstrap and gradually scale up the business as you get more familiar and become profitable.
The advantages of a trading business are
1) Scalability
Trading is much more scalable than most small businesses. Scaling up can be as simple as changing a few numbers of your trading model. It is not difficult to see private traders trading millions of dollars in the comfort of their own house. Of course the caveat is your strategy is profitable.
Leverage is easily available through your brokers. Of course the business of trading is never a get rich quick scheme. Consistent returns are definitely more important.
2) Time required
Most small businesses require a lot of operational time on your part. Quantitative trading takes little time. Different traders can automate different degree of their trading system. Thus the amount of operation time required on running your trading strategy depends very much on how much is automated and the core design of the trading strategy.
Some traders spend an hour before and after market close running their system and for the rest of the day, it is on autopilot. Others build completely automated systems which requires their attention only when something goes wrong.
Sometimes traders have an urge to interfere as being idle typically does not sound too good to most people. Well, at times the more you interfere with your system, the worse it performs.
However the little time required for operationally running your trading business does not imply that you should spend your days doing absolutely nothing.
It is crucial that traders spend the day researching, developing, backtesting and refining more trading strategies, and implementing them.
The great news is this research and development part of the business can be done anytime you like to, giving the trader lots of flexibility.
3) Marketing
One big difference between a trading business and traditional small businesses is the non neccessity of marketing or client servicing.
Most other businesses generate revenue from other people. the trading business is compensated solely on your decision on the markets.
As you brainstorm for business ideas, do give the trading business a thought. If it suits your personality and interests you, it would be a very satisfying journey.
Jay Ng spends time on trading strategy development and implementation, with particular focus on systematic trading systems and quantitative screening. Jay is currently Director of http://www.asiapacfinance.com and previously a trader with a bulge bracket investment bank and hedge fund.
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