How to invest like a Wall Street Trader
Many new investors get an idea of the stock market through pop culture references and legendary stories. But is it realistic – and can you replicate their success?
A familiar example is the Hollywood film The Wolf of Wall Street, which depicts the life of Jordan Belfort, former stockbroker and convicted felon.
In the movie, Belfort was able to amass a huge amount of wealth seemingly overnight through shady brokering methods, which eventually led to his undoing.
Many would-be traders and investors dream of achieving the kind of riches that Belfort did. However, what many of them don't realise is that successful trading, whether it be stocks, currencies, crypto or commodities, is rarely a get-rich-quick scheme – and is in fact a skill that can take many years to master.
There are many lessons any aspiring trader can learn from Belfort's story (both the good and the bad). Here are a few that come top of mind:
Understand the difference (and often the fine line) between legal and ethical behaviour in the industry
Many people don't know that it is completely legal for brokers to trade against their clients and profit off their losses. In the industry, it's what we call operating on a B-book model. While it may be legal, is it ethical? Can a broker have their client's best interests at heart when they are making money off their losses?
At Global Prime, we never profit off client losses, and we are taking a stand against this highly unethical behaviour. We're the first broker to implement Automated Trading Receipts, allowing clients to verify that we don't profit from their losses and hold us 100% accountable for all trade executions.
Educate yourself on the market first or brokers may take advantage of you
For any beginners looking to get into trading, it is essential to do your research on the market first, including the different brokers available. Without doing the all-important pre-research, you leave yourself open to being taken advantage of by dodgy opportunists.
Don't be afraid to ask questions. Asking your broker questions like "do you profit off client losses" or "can you share my trade execution details with me" will make it clear you are going to hold them accountable. Keep in mind that if a broker does not offer to show trade receipts verifying that they were not on the other side of your trade, you won't know for sure if they are profiting from your losses.
Keep the term "If something seems too good to be true, it probably is" top of mind
While in the movie Belfort was able to become a multi-millionaire overnight, he did it through dodgy and illegal means, which eventually led to him being convicted of fraud. The lesson is, it's always better to do things ethically and above board. While it may not lead to riches overnight, it will serve you better in the long term.
Unfortunately, many first-time traders will learn the hard way to steer clear of high-pressure tactics, deposit bonuses or incentives. Remember this simple advice, if a broker is trying very hard to get a beginner on board, then it's usually a sign that something dodgy may be going on behind the scenes. Traders will want to find a well-regulated broker with a strong personal support team, good pricing and execution of their trades as well as public access to the founders or upper management.
If, after all of this, you're still interested in taking on the exciting (and often challenging) world of trading, here are some further insights I can offer you:
Make sure you understand the risks involved
Trading involves the risk of capital loss, especially when trading leveraged products. If you go in not understanding the level of risk management involved, you are more likely to lose. If you are not careful, there are risks known as "black swan events" that can wipe out an entire account if you take on too much exposure.
It's essential to find a good mentor
When beginner traders first start seeking information about trading, online is usually the first place they look. However, in 2021, it is often information overload when it comes to finding the right strategy that will work best for you. You need to find a strategy that fits your experiences and circumstances, and it can often be tricky for a beginner to cut through the volume of information to formulate a plan that works for them. This is where having a trading mentor comes in. Great mentors can really help to guide a new trader in the right direction, and if they take it seriously, they can be held accountable to their trading mentor as well.
Research and find the strategy that works for you
This is linked to finding a good mentor. Trading without a proper plan or strategy in place can and should be likened to gambling at a casino. Eventually, the ups and downs a trader goes through on a daily basis will lead to poor decision-making and ultimately the loss of capital. Having a set plan in place means keeping a record of all trades and not making impulsive decisions. It's important to know when to enter and exit a trade before the trade is entered into, instead of adjusting mid trade and just hoping for the best.
Study the psychology of trading
Lastly, you can have the best strategy in place and the best mentor to guide you, but without the right mindset, a beginner trader is bound to lose eventually. A trader needs to be cool and calculated, and make decisions based on strategic reasoning, not emotions. Unless a trader has learnt to master their emotions, they will most likely make impulsive decisions and run into problems.
Getting into the world of trading for the first time is exciting and fun, but not without its challenges. If you follow my advice, you are well on your way to setting yourself up for long-term success in this ever-changing industry.
Jeremy Kinstlinger is the director and co-founder of Australian owned and operated online broker Global Prime (AFSL no.385620).
Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.
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