Education

Talking about the M-word

A great taboo of our age

Sex, religion and politics are easier to talk about than the ‘M-word’. Well it’s true. Money is very hard to talk about. I was talking to my friend who works in accounting a few months back and he was bemoaning the fact that whenever he tried to advise his extended family on their finances he rarely got anywhere. In fact he has resigned himself to the fact that his good advice was ignored by many in his family. You can lead a horse to water, but you can’t make it drink and all that. In fact, in the UK at least, it is much easier to talk about sex, religion and politics than money. Money concerns are also the root of many mental health issues. So much so that Lloyds have launched an ad campaign titled,‘Why do we find it so hard to talk about the M-word?’. There is some good general advice on the page, so well worth a look. It is the M-word that I want to talk about today. Money. It is not just generally speaking about money, but it is specifically talking about the money that is dedicated to trading FX. It is great advice, but advice I have personally never, ever heard before. That’s shocking. Perhaps, because it is because it is such a taboo subject? Well, we love to push the boundaries here at ForexLive.com, so here is my take for all you traders. It is ultimately going to be relevant for you whether you are a retail trader, seasoned trader, or managing a large fund. 

The received wisdom on money, and why it falls short 

Search online and there are generallytwo bits of advice on money that get regurgitated. They are generally something like:

  1. Don’t risk more than about 2% per trades and;
  2. Only trade with money that you can afford to lose.

That’s generally about as far as it goes and there is some truth in it. I have written pretty extensively about point number 1 about not over leveraging in a number of places. See here and here and here for more info. I don’t want to tread over that ground today, instead I want to move on to point 2. The received wisdom which says that you should, ‘Only trade with money that you can afford to lose’. It’s bad advice and here is why. It’s a subtle, but important distinction. There is no money that you can ‘afford to lose’. Approaching trading this way with ‘money you can afford to lose’ is setting you up on completely the wrong mindset. Let me explain in the next section below.

Brokers only make money when you trade

There are some good brokers and there are some bad brokers, very bad. Some of the bad brokers are unregulated, unscrupulous and don’t see their clients as customers to serve, but as suckers to extort. These are people with zero conscience. The sort of people who are just trying to rip people off. You know the sort, who would sell double glazing by befriending pensioners with dementia. As my friend’s father would have said. LMF. (Low Moral Fibre).You see, these sorts of people want you to develop the mindset that your FX trading account is money to lose. They may provide you services, and trading signals all designed to do one thing and one thing only, generate commission on the spread for the broker.

Money management

No money should be seen as ‘money to lose’.

Different people have different relationships to money. For some, money is their God. People will do evil things for money. Sometimes desperation leads them to that place, other times it is greed. Regardless, the love of money is the root cause of all kinds of evil.We know that. These abuses of money understandably lead some people to hate money. I understand that. I had a great Greek work colleague one time back in the naughties when I was working for a graphic design company who would refer to money as a ‘necessary evil’. I sympathise with that view. However, personally I take a third way. In short it is this: Money is a great servant, but a terrible master.

Financial money skills

Money is a great tool. It is the glue to keeps us together. A good wage, a provided family, good healthcare, money for entertainment, to improve your surroundings. Treat your spouse, your kids. This is all made possible with money.These are all good things. The poor are served well when the resources of the rich (who have more than they need) are distributed to those who don’t have enough. Look at some of the actions of the world’s richest people. A British Business man, Brian Burnie, sold his $26 million dollar estate after his wife got cancerin 2009 when he sold his $26 million estate containing his home and luxurious hotel to fund his own charity, which involved accompanying and transporting cancer patients for free from their homes to the hospitals. Burnie explained that he wanted to help lessen the suffering that cancer patients often had to go through and hoped that his act would inspire other wealthy people to do the same. Nice guy right? Money, can be a great tool. Here is another list from the BBC of individuals using their wealth, for many peoples good.

Money is your tool

You see, money is your tool in this world to serve others. It may be just your family. That’s ok, and that’s good to provide for them. Ideally you provide for yourself, your dependents and have some more for those who need it too.So, you see, you have no money to lose. Don’t approach trading as though you have money to ‘lose’. Yes, you have money to risk. That’s different though.You should always try to make the most of what you have got. Taking a risk is part of life and as soon as you enter (or even don’t enter) a market you taking risk. You can’t (and shouldn’t) eliminate risk. You manage it.

So, this is how I view my accounts. Whether I am trading my fund’s accounts or my private account for my family. My aspiration is this: ‘May I be a good steward of the funds entrusted to me’. So, copy me and tell those trying to take advantage of you to go and take a long walk down a short pier. You have no money to lose, only money to manage. So, be a great boss. Your own.

Do retail  fx traders lose money?

If you like this article, please leave a comment or recommend it as it lets me know which articles are of most use. If you would like to have a different topic covered for future weeks, please leave a comment below.

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