Entrepreneurs create startups founded on their confidence and intimate knowledge of a product or service that has yet been commercialised. They’ve tested the market to gauge consumer interest, and with the positive feedback, these people back themselves and usually with their own money.
However, most new business owners are not financial whizzes who understand everything about running a private company and how to prepare it for an initial public offering (IPO). According to SBA, two-thirds of businesses fail within the first ten years and not understanding finance and when to fund up is one of the main reasons for failure so just imagine what a difference better financial knowledge may have made to all those startups that failed!
Business leaders who learn to trade discover the value of money, the importance of making a profit over a loss, and why it’s not enough to just “break even.”
All businesses need someone at the helm with sound financial acumen. As a trader, you learn 4 ways trading can shape your future, that you’re both the first and last line of defence, and what you choose to do daily makes an enormous difference to your overall success. In addition, startup owners can acquire valuable experience in trading stocks, shares, and other securities through a trading account.
What Are You Trying To Do When You Trade?
From the outside, trading seems a little bit like modern alchemy. You’re trying to predict movements in the prices of securities that appear entirely random to the outside observer. However, a skilled trader knows that prices do not necessarily move randomly and that there are situations in which it’s possible to beat the market and figure out where prices are headed before anybody else.
For savvy traders, bubble situations can be highly lucrative. You might observe that the share price of a particular share is rising because investors are excited by the message of the firm and its prospects for future profits. As more and more people pile into the stock, the price goes higher and eventually reaches a point where it looks unsustainable, wildly out of whack with the firm’s earnings potential.
As a trader, you’re in an ideal position to take advantage of this state of affairs. You could short the stock, believing that the price will go down as fundamentals kick in, and then unwind your short position when the price eventually does fall, bagging yourself a handsome profit in the process. It’s a risky game, but if you have a conviction that you know where the market is heading, you can make a handsome profit.
Trading, therefore, is all about looking for opportunities to profit from mispricing in the market. Sometimes, the market misprices things by a few hours, but it can take months for assets to reflect their intrinsic value on other occasions.
To Trade Successfully, You Must Build Your Financial Acumen
The great thing about trading is that if you can build the right skills, your earning potential is limitless. Stocks, bonds and other assets float up and down all the time away from their value. Your job is to look at those companies, evaluate expectations about them, figure out what other market participants are likely to do, and then adjust your strategy accordingly. At every stage of the process, you’re thinking about who is expected to do what and when.
When it comes to trading, breaking even isn’t enough. Unfortunately, there are transaction fees that you must pay with every asset purchase you make, equal to the difference between the asking price (the price you must pay for an asset) and the bid price (the amount that other people are willing to pay for an asset you own). So just selling security back to the market at a price you bought will lead to a loss, thanks to transaction fees.