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Trading must be treated as a business if, you are currently trading for living or want to take it up as a future substitute to full time earnings. Considering the fact that you need to manage your monthly bills and expenditures such as your computer equipment, your quote feed, your DSL line, travel to investment conferences and continuing education seminars. It is imperative for you to decide whether you want to form a public limited company or a private limited company.
If you are undertaking trading as business it is always required to be involved in "the study of daily and longer-term trends, analysis of a company's prospectus and annual reports, and the seeking of advice from experts. And, it is important to keep record of your trades. Take advantage of all the regular and necessary expenses as business deductions. This can help you save thousands of amounts annually. You should seek advice from a tax specialist so that you know the best way to cut your business expenses.
Treating trading as a business will help you concentrate more on it. Analyzing your expenses as a trader let us take an example - You need to have a room where you have the required peace for trading. Suppose you rent a small one room office that could cost you like 1500-2000 per month. Then you have to have equipment that includes desktop computers, printers, laptop for travel and so one. Let’s say these things cost you 10000. You also need a DSL connection for trading and have to pay for its monthly rental. There may be some everyday expenditure for your investment conferences and meetings. If you round-up all these it will be approximately 7000 -9000 per month. You may also require some good trading books and probably some courses to keep yourself acquainted with the changing market trends and that adds to an additional 500 annually.
Do you have a business plan? What business plan you have in place to protect the money you make in the market. If you are a small time investor and decide that trading for a living is something that interests you, you should think do you have the financial resources, time and emotional makeup to trade full time.
Once you have taken up trading seriously, you need to cover your cost of living expenses, mortgage payments as well as your business expenses. As a long term trader what will you do when the market conditions change according to your system or methods?
However, other than all the expense listed above, only commission is deductible from your capital gains tax bills because only commissions are directly related to the cost of buying and selling. You must also note that even - Warren Buffett only achieves 24% annually on average - and that made him one of the world's richest men. If you're not Warren Buffett and expect a more typical 15% average annual return, then you would still need a Rupees 33,000 portfolio to beat these fixed costs. But with a Rupees 100,000 portfolio you need a more reasonable 5% increase to take care of the above fixed costs. How many online traders have such a large portfolio?
You have to identify the gaps and try to fill it. Gaps in a traders education will have to be filled before the end-goal is achieved, just like price gaps as in the markets. Develop a thorough understanding of trading online. This means what the markets are really about, what drives them, how to read a price chart, how to properly plan trades, how to identify good setups, entries, exits, etc. The basics are essential to master. Another practical problem arises if you haven't run a business before you may not know how to go about it. Any endeavor engaged on a regular basis for profit is a business. Even the government looks at it this way.
The more structured a business is, such as your trading online, and the more it includes sensible formalities such as reporting, the more consistent it will become.
In addition to having a system for selecting and placing trades, you should systemize what you do in your currency trading online. This goes right along with treating your trading as a business, but in more detail and from more of an operational perspective. Systematically planning what you do will bring repeatability and predictability to your activity and this is desirable in trading as well.
Educate yourself and seek out the developmental resources to help you through these five steps to ensure that you give yourself the best chances of realizing what currency trading online has to offer. Make sure you give yourself a happy ending.
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