Trading & Inflation

[glyder]

I'm not a full time trader - ie I don't by any means take a sole income from trading. Its a possibility for the future, there are various pros and cons and most are personal depending on my own circumstances.
However one thing that would concern me is trading for a living and fighting inflation.
It seems to be well on the up to me. Fuel, food, train fares, VAT, commodities,
and currency devaulation are all playing their part. Higher I think the govt figures are a rose tinted.

OK so my trading point is if you are taking a sole income from trading your capital, taking say a % per week for living costs and a % your future reinvestment pot, devaluation via inflation presumably creates pressures for you to increase that % income from your capital in order to keep up standards of income.... unless you have a critical mass you will not be making progress financially.
Whereas if you are a worker in theory you are in the salary system and one way or another - pay rises, promotions or job moves - you can keep your income up with inflation and use trading to maintain your capital.

Is my thinking right on this?

 

[scose-no-doubt]

On an income basis, theoretically yes but a salaried worker still has the same problem in regards to savings, pensions and investments and yield

 

[new_trader]

I'm not a full time trader - ie I don't by any means take a sole income from trading. Its a possibility for the future, there are various pros and cons and most are personal depending on my own circumstances.
However one thing that would concern me is trading for a living and fighting inflation.
It seems to be well on the up to me. Fuel, food, train fares, VAT, commodities,
and currency devaulation are all playing their part. Higher I think the govt figures are a rose tinted.

OK so my trading point is if you are taking a sole income from trading your capital, taking say a % per week for living costs and a % your future reinvestment pot, devaluation via inflation presumably creates pressures for you to increase that % income from your capital in order to keep up standards of income.... unless you have a critical mass you will not be making progress financially.
Whereas if you are a worker in theory you are in the salary system and one way or another - pay rises, promotions or job moves - you can keep your income up with inflation and use trading to maintain your capital.

Is my thinking right on this?

I think your maths has gone wrong somewhere. If inflation is 5% pa and your capital is growing at 10% pa you are making real financial progress.

 

[glyder]

I think your maths has gone wrong somewhere. If inflation is 5% pa and your capital is growing at 10% pa you are making real financial progress.

Yes, I agree with that, but its the distinction between capital and income
that bothers me. If I was to derive a sole income from trading I would take an income
account for monthly living (ie a wage) and keep a separate investment account which would equate to savings / pensions.
Its the monthly wage account keeping up with inflation that concerns me more,
if I look at salaries over the last 10-12 years the increases have been very significant
(taking personal knowledge into acount here not govt salary surveys and based on what I have seen / known in London). Could trading from a fxed base have kept up? I don't know.
(Also, I don't believe the govt figures on inflation...not sure whaat they are now but
at the very least they don't reflect the price increases for things I shell out on.)

 

[glyder]

On an income basis, theoretically yes but a salaried worker still has the same problem in regards to savings, pensions and investments and yield

Yes, true but the living standard is the first thing to maintain in the face of
inflation (govt theft)
Also, if you can trade you can trade your savings too.
eg There are FX based SIPP wrappers out there.

 

[meanreversion]

The rate of inflation is probably the least of your concerns as a self-backed trader. Firstly, you need to start making money. Once (if) you gain consistency, increasing stake size a tiny bit will take care of inflation, within reason.

 

[new_trader]

Yes, I agree with that, but its the distinction between capital and income
that bothers me. If I was to derive a sole income from trading I would take an income
account for monthly living (ie a wage) and keep a separate investment account which would equate to savings / pensions.
Its the monthly wage account keeping up with inflation that concerns me more,
if I look at salaries over the last 10-12 years the increases have been very significant
(taking personal knowledge into acount here not govt salary surveys and based on what I have seen / known in London). Could trading from a fxed base have kept up? I don't know.
(Also, I don't believe the govt figures on inflation...not sure whaat they are now but
at the very least they don't reflect the price increases for things I shell out on.)

Yes, but it's ALL a percentage. This is all in theory, suppose you trade 10 Contracts which gives you an income. You take a percentage from your capital as your salary so that what is left increases your trading capital by 10%. The next year you increase your trading size by 10% to 11 contracts.

Eg/

1) Starting capital = $100,000
2) Yearly Income from trading that capital = $20,000
3) Capital taken as salary = $10,000
4) New Capital = $110,000 or +10%
5) Increase trading size by 10%

This is a simple hypothetical but you get the picture.

 

[scose-no-doubt]

Yes, true but the living standard is the first thing to maintain in the face of
inflation (govt theft)
Also, if you can trade you can trade your savings too.
eg There are FX based SIPP wrappers out there.

You think you'd be the only person worrying about this when you're dealing in financial markets lol
As MR says I'm sure you'll never be having to worry about liquidity if you had to up your size by 5% when the rest of the world is probably thinking along similar lines.

 

[glyder]

The rate of inflation is probably the least of your concerns as a self-backed trader. Firstly, you need to start making money. Once (if) you gain consistency, increasing stake size a tiny bit will take care of inflation, within reason.

Cheers MR
I guess those are some of the personal factors I mentioned.
Those and whether I would actually want to be using home
as an office.
At the moment I tend to trade longer term, its OK.
It doesn't interfere with work nor vice versa.
But of course I always wonder about other options
and this inflation question has always been in the back of my mind..

 

[glyder]

Yes, but it's ALL a percentage. This is all in theory, suppose you trade 10 Contracts which gives you an income. You take a percentage from your capital as your salary so that what is left increases your trading capital by 10%. The next year you increase your trading size by 10% to 11 contracts.

Eg/

1) Starting capital = $100,000
2) Yearly Income from trading that capital = $20,000
3) Capital taken as salary = $10,000
4) New Capital = $110,000 or +10%
5) Increase trading size by 10%

This is a simple hypothetical but you get the picture.

Thanks NT.
Maybe its a non issue.
I think the key thing is a critical mass.
All other things being well a decent lump sum seems key
to equalling and maintaining an equivalent of a good salary.

 

[meanreversion]

In order of priority

1. Know that you are able to make money
2. Obtain funds
3. Make profits
4. Buy a comfortable chair
5. Buy a Franck Muller watch
6. Go on a nice holiday

...

53. Be concerned about the rate of inflation and how it eats into your trading capital

 

[scose-no-doubt]

I agree with all but #5

I'd have a cartier any day... one of those lovely rose gold ones

 

[glyder]

In order of priority

1. Know that you are able to make money
2. Obtain funds
3. Make profits
4. Buy a comfortable chair
5. Buy a Franck Muller watch
6. Go on a nice holiday

...

53. Be concerned about the rate of inflation and how it eats into your trading capital

Lol,
Cheers mate

I guess I am thinking too much like a wage slave.
Only thing I'd change is holiday always comes first.
And I'll have to look up Frank Muller to see what its all about.

 

[davidh1819]

1. Know that you are able to make money
2. Obtain funds
3. Make profits
4. Compound the Profits
5. Compound the Profits for another year
6. And Again
7. And Again
8. And Again
9. By two Franck Muller watches
10. Buy a very comfortable chair
11. Go on a very nice Holiday


the longer you wait the better

 

[meanreversion]

Just don't mess it up by buying a comfortable watch, and sitting in a chair when on holiday with Franck Muller.

 

[scose-no-doubt]

Boooooo @ david

 

[davidh1819]

Boooooo @ david

why? compounding is very powerfull!

 

[glyder]

why? compounding is very powerfull!

Yes,
And hols are good.
I'm booking one now!!

 

[scose-no-doubt]

booo @ waiting and being sensible. I dunno about you but money still smoulders (as opposed to the old raging inferno) in my pocket.

 

[davidh1819]

booo @ waiting and being sensible. I dunno about you but money still smoulders (as opposed to the old raging inferno) in my pocket.

Well look at this way

if you start with £30,000 and you make a 40% retun in one year of trading lets say
thats £12,000 enought for the watch chair and holiday.

however stick to it for 5 years and compound you will have over £160,000! You wont get 40%year in year out but you get what i am saying here.

its not sensible its logical lets face it 5 years will pass anyway and when those 5 years go by and you have spent your yearly profits, You will think i could have had 6 figures if i had waited.

You see Good things come to those who wait