The Structure of Business

In this article we compare trading to a business and analyze the differences between trading and gambling. Are traders gamblers? Are traders businessmen? Or is everyday life including business a calculated risk. Or a 'gamble'?

Gambling in its pure sense has no structure.

You walk up to a roulette table and put X on Black.
Or sit at a Blackjack table with $500 and play.

Business has structure - its structure is designed to make a profit. How you come to that profit --- be it Trading, Playing Roulette or Blackjack or selling Upholstery goods is not important.

The structure of business --- the how you derive profit --- is the single most important key to all business.

Some are better at business structure than others and business structure needs also to be DYNAMIC --- your market will change and to stay profitable OR become more profitable, business must have the ability to morph into prevailing Market conditions.

Let's take Trading as the Business example.

To be successful it will need:

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(1) Capital --- the business shouldn't be undercapitalized.
(2) A proven methodology that cuts losses and maximizes gains by either having more wins and profit than losses OR far bigger wins than accumulated losses. In other words it must have positive expectancy.
(3) The costs and directors drawdown's must be at a level which the business can sustain.
(4) Taxation must be considered.
(5) To have a Blueprint with which to "Benchmark".
(6) To have a reporting procedure which monitors business success and clears action plans for best and worst case scenarios.

As a business establishes it should have an expansion programme and a clear structure to shift it to the next level/s.

How successful that business will be or could be will be determined by the mechanics of the internal structure of the business and to a large degree by the thoroughness and business acumen of its Directors or Management team. Often care to detail is overlooked in pursuit of the BIG PICTURE.

As an example of internal structure --- I could if I had the capital have 10 Techtrader methods running in the one market --- that would be the market which is powering ahead of others, OR

I could have 3 other methods running in tandem with the Longer term method OR

I could have a method of switching off my Long Trading and Switching to Short Trading, OR

Trade Futures or Commodities --- or all of the above --- endless.

You'll note there is no mention of How I trade or what I trade --- that's simply the Commodity and Plan of business. The above is THE STRUCTURE OF BUSINESS *****

Without it most have the Commodity and a chosen plan of a business but NO BUSINESS STRUCTURE with which to carry out their business.

Just like renting a shop and Selling upholstery --- 90% will fail however those figures will sharply decrease with a sound REPORTABLE and MEASURABLE business structure.

I sincerely hope people can see the subtle yet POWERFUL difference to trading with a plan.

A trading plan is simply the way you are going to enter the market on an individual basis. The trading business plan is what you do during the time in the market on an accumulation basis.

The business plan, encompassing the trading plan, would be all else and would answer the following questions:

Why am I doing this? When will I stop doing this? What are my goals? How much time do I need to expect what I want to achieve? How much capital do I need? What overheads are there? Will I have a backup computer? Do I have access to my accounts by phone? Am I psychologically fit to carry out the business ...etc?

More importantly it would look at monitoring the business and have strategies for a: making profit (trading plan), b: strategies for monitoring performance, c: strategies for adapting the business due to performance or new opportunities.

However, simply having the plans doesn't constitute future success --firstly it must be a proven profitable methodology, secondly it must be adaptable to market conditions if trading falls outside of the business blueprint. To be disciplined when the method is OUTSIDE the Blueprint could be a disaster.

Perception. Some may have heard this one.

A shoe salesman was asked to go to China to investigate the export of their shoes into China.

When he returned he reported that opportunities for shoe sales were virtually non-existant. When asked why by the CEO of the company he said -:

"They are all bare feet they have no need for shoes"!!.

However, the salesman could have seen this in a wholly different perspective....

market wide open.....unlimited opportunity.

Trading (if done properly) of course has features of both business and gambling.

But here's a couple of views to throw into the mix:

I used to be in the furniture manufacturing (upholstery) game. The fabric merchants would come around and peddle their indent lines. Sometimes we would bite and indent a quantity of a particular fabric.

Will it sell? Will it sell on our furniture? Will it sell at a price we can make a profit on? If it didn't sell, not only did we not make a profit on the fabric, but also the underlying piece of furniture as well. Will I have to sell it at a loss to recoup some capital?

I could invest thousands of dollars spend weeks of my time on building a new design. Will it sell? Will it enhance the reputation of my company? Will it bark at me every morning when I walk in the shop? (Had a few of those) Will I have to send the piece of crap to the auctions to get rid of it?

Is this all not an uncertain outcome? A gamble if you will?

If someone opens a shop on a high street selling widgets. Will the widgets sell? Will enough widgets sell? Will enough widgets sell to pay the rent/overheads and my wages.

Is this not an uncertain outcome?

At the end it all comes down to research, planning and management; the often quoted positive expectancy.

Business can become a gamble and gambling can become a business (e.g. Crown Casino).

Indeed, "What am I doing this for?" is a paramount (if not rare among traders) consideration. Often it's just a fuzzy notion of "making money" or "getting rich".

Just keep in mind that trading as a business isn't easy. Then, there's the matter of running your own business. As a share trader, even with the benefit of checking fundamentals, technical analysis, and chatting to other investors on discussion boards, you still have absolutely no control whatsoever in regard to the stocks you buy or sell. Whereas, when running your own business, you have absolute control, and you will sink or swim entirely and only as the result of your own expertise and efforts.

For some trading most certainly is a gamble. For many it is "The occupation, work, or trade in which a person is engaged"

I know why I'm doing it, and I'll stop or at least spend less time doing it when I achieve my goals.

And you may well reach your goals much sooner had you been more professional in your trading business.

It hit me fair between the eyes when I was 25. My business at the time turned over $300K and made me approx 10%.

My Mentor had a larger business Turning over several Million and making him around 15%.

In a single year he made around 14 X more than I did. Wow 14 yrs of profit in one! Clearly to me at that time being a better business man had its rewards.