Trading serious numbers

There is an old saying that you have to speculate to accumulate and in the game of trading if you are ever going to make serious money then ultimately you have to be prepared to risk serious money.

It might be possible, actually desirable, especially if you are new to trading or a day trader placing hundreds of trades a week that the amounts you are trading are relatively small. After all, if you are spread betting the FTSE100 and placing 10 trades a day, a few pounds a point can return you a decent amount if you are actually good at it.

However, if you are trading more long term and placing fewer trades in the process, then ultimately the chances are that a pound or two a point isn't going to return you big money. Yes, it can still be very profitable, but to make the big money, sooner or later the chances are that bigger stakes will have to be used.

Trading bigger amounts does require a psychological requirement that you do not fear doing this. Trading and investing probably has the same psychological effect on us as other things in life. If our experience is bad it effects us to the negative and warns us off next time. If our experience is good, the effect on our future actions is more positive. In trading terms this negative and positive reaction to prior events will play out in how we act in the future.

Which brings me to a couple of stories that I came across this week.  The first is a trade placed by the Naked Trader Robbie Burns, which chances are many of us would not have made. I mentioned in this post on Greencore Group how the share price had been affected by the horse meat scandal, at one stage falling nearly 30% in the day. I also mentioned that Burns had indicated on his site that if the company fell into the 80p region he would buy it big time. At that stage the horse meat scandal news had not hit the company, the following day it fell to below 80p on that news.

If you want to know the full story of what happened next, then I suggest you download the latest addition of Spreadbet Magazine (it's free - link here along with other free online trading magazines). Needless to say, the Naked Trader did buy big time and in the article he talks about how he made so far around £10,000 (on paper) on the bounce that came from what was essentially a falling knife of sorts. Accept that in his mind it wasn't really and he gives the reasons in the article.

Of course, to make that much money in such a short space of time requires the type of stakes that most spread bettors would probably shy away from. It requires a willingness to take on a level of risk which many probably couldn't handle, but in the case of the Naked Trader we are talking about someone who has already made a large amount of money from trading shares. As his returns got bigger he has clearly increased his stakes.

Which brings me to the second story which can be followed in this blog, Barefoot Spread Betting. Again serious amounts are being staked in the experiment and thus far serious returns being made.

Now, such stories should always come with a financial health warning. Anyone starting out in trading or investing should start with amounts that you feel comfortable handling. There is nothing wrong in starting small and building up, in fact in 99.9% of cases it is probably advisable. Trading and investing is a confidence game, which will often only come with experience and time. Trading big amounts is not advisable for those without the experience to take on that risk. It is great to read about those having success, but the trading game is also full of those that have lost big and it's not something we should forget.