Running a trading floor can be fun. It is especially better when you have a lot of interests in finance and investments. Although We are biased, We believe running a trading floor or being a trader is the most interesting careers anyone can take.
Consider that you don’t need to pay for an office. In most countries, you don’t need to pay taxes and above all, all you need is a computer and a high-quality internet connection.
Even if you can only trade does from your home (and maybe to familiarize yourself with the markets can be fine), the benefit of having an office and work in team is still greater.
However, like in all businesses, having a trading floor has its own ups and downs. In certain times, the market will go against you and unfortunately, you will make losses.
Many trading floors have been shut after a series of mistakes. In this article, We will highlight the key steps you need to follow when rebuilding your trading floor.
Tips for managing your office losses
You are not the only one
It is said that misery loves company. This means that when you are in trouble, chances are that you will be at peace knowing that other people are in trouble also. The pain is usually much if you are alone.
If your trading floor is going through challenges, you are not the only one. Also, you are not the first. The fact is that many trading floors and hedge funds have gone through worse challenges and emerged successfully.
A good example is Bill Ackman who runs Pershing Square Capital, a hedge fund with more than $10 billion in assets.
Before starting the fund, Bill used to run another fund called Gotham Partners with his friend. After a series of bad investments in real estate, Bill was forced to shut down his fund.
Today, Bill is one of the most prominent people in Wall Street and his fund has had major wins in the stock market.
Identify the mistakes
To be in the current situation, chances are that you made one or several mistakes. It could be you or one of your traders.
To start over again, you need to identify the source of the mistakes. Without doing this, chances are that you will continue making the same mistakes.
Perhaps you hired the wrong people. Could be that your management skills were not the best. It could also be that you encouraged your traders to take very big risks.
There are many mistakes that you could have done. The right thing is to identify these mistakes and work towards correcting them.
Work on your team
An important concept when it comes to solving these challenges is to work on your team. This involves several things. First, you identity the cause of the underperformance. At times, the performance will be because of one team member. In other times, it will be because of a few members.
Second, after identifying the challenges, you should work to train the member or members. One of the best ways is to let these team members be trained by those who are performing well. Another option is to enroll these members to an online course that is geared towards solving these challenges.
Third, after the training, you should do follow up to see how the members are performing. You can even place the underperforming member in a demo account to gauge their performance. The final stage should be to eliminate the underperforming member. While this is a difficult thing, it will help your floor in the long term.
» Related: How to Built a Better Working Relationship
One of the main reasons why most trading floors fail is because of the amount of risks investors take. To achieve the goal of high returns, traders end up taking too much risks.
The higher the risks, the higher the returns. Equally, the higher the risks, the higher the chances of losing money. Therefore, the goal of your new floor should be to achieve slow but steady growth.
» Related: Best risk management strategies
There are other things that will help you achieve this. For example, you can reduce risks in your trading floor by reducing the amount of leverage that your traders are using. Also, you can create rules to guide your team mates on the maximum volume per trade.
Be extremely vigilant
Since this is your new attempt to rebuild your fund, you should ensure that you are extra-vigilant. Being this vigilant ensures that the past mistakes are not repeated. It also means that you should go an extra mile to prevent making mistakes.
For example, you should set new rules to your traders. The new rules should be about returns and preventing mistakes from happening.
A trading floor is an excellent way to make money in the financial market. However, at some point, all floors go through their winter periods.
A good example of this is Cathie Wood, the well-known Wall Street money manager. After recording a strong gain in 2020, her fund lost over 60% in less than two years.
Also, we have heard stories about money managers who have lost fortunes in the market. Therefore, using the strategies above will help your floor make a comeback.
External useful resources
- How to Restore Confidence After a Loss – Moneyshow