Sunday, 30 June 2013

A Business Plan, Different to a Trading Plan, Part 1

Trading is a business. A business needs a business plan once you get to CP.

The business plan is different to the trading plan. The trading plan is the detailed way you go about trading a particular market(s) and periodicity including the trade and risk management. A business plan is a plan how to conduct and grow your business.

While most traders have now finally "got it" that they need a trading plan, most still don't have a business plan. The business plan is not talked about so much as most traders are still trying to reach their first goal of CP.

So what's in a business plan? The starting point is the same thing that's in most business plans, an analysis of costs and the profits that are required to hit breakeven taking into account all expenses (even living expenses for a trader).  The second part of the business plan is describing the actions required to meet those costs.

For example, a trader starting out in business may plan:

Costs per month
Data                                                        120
Platform                                                    50
Rent & Utilities                                      1,500
Car Expenses                                          500
Education                                               200
Various                                                  930
TOTAL                                                3,300

Breakeven @ 165/day for 20 days        3,300

Trade 2 contracts ES per trade to earn average 1.5 points per trade as per my trading plan for ES day trading.

This busines plan  provides a goal as well as an assurance, if met, that the trader has a business. Income surpasses expenses. As the business develops, goalls change and the business plan is updated.

OK. Now you are a successful trader with a number of dependents and a higher level of expenses and income and the business is growing substantially, what sort of business plan might be prudent to protect both income and assets. This was something I took a lot of time over and still do. I'll write the second part of this post soon.

1 comment:

  1. thx im interested in more of these type of articles - really trying to fix up that part of my business