Are You Hedging On Your Decision to Become a Trader?
We have all heard the term “hedging your bets.” What does it mean to hedge a bet in trading? It means opening up two positions in opposite directions. You are using one position to offset your risk with the other.
For example, you could put your money on GBP/JPY rising in a High/Low binary options trade at 24option (our top rated trading site for Canadians), but you could open up another position where you wager it will fall. You might make the position you are more confident about larger than the other. That way you can reduce your risk if you lose, but still make a good profit if you win.
The whole thing with hedging is that it is a double-edged sword. On one hand, it can help you to reduce your risk exposure, and not losing money is good. On the other hand, it means that when you do win, you win less than you would have if you had confidently pursued your position without hedging. It also means you may not be confident of your position in the first place, which sometimes begs the question of why you are trading it (really, it is all a question of whether your hedging system brings in consistent returns that are enough to offset your losses or not).
That is hedging in trading systems, though. What about hedging in life?
What am I talking about? There is a reason that “hedging your bets” is such a common phrase even among non-traders. Hedging is something we do anytime we are not feeling too confident. Sometimes we are underconfident because are lacking skills or a productive plan. Other times we are lacking confidence not because we lack ability, but because we suffer from mood swings or we have been brought down by past experiences.
The intersection between trading in hedging and trading in life comes down to how you manage your trading career. Whether you hedge your bets or not on your binary options platform of choice, here is the real question: Are you hedging your bets about becoming a binary options trader?
There are a number of ways that beginning traders hedge on their decision to become professional traders:
- They hang onto a part-time or full-time job while they start trading.
- They actively hold themselves back from learning (often unconsciously).
- They hold back at the moment when it is logically time to make a deposit into their account and begin trading live, and/or deposit less than they could or should.
- They never really commit to the decision to become a trader at all. They “hope” to become a trader, but they never declare “I will become a trader.”
Hedging is not necessarily something which is entirely negative or positive with respect to how you conduct your trading career. It is tempting to say that hedging is always going to hold you back, but that is not really the case. That day job you are still hanging onto is something you probably should still be hanging onto. There is a difference between approaching something with confidence, knowing you will eventually cut ties to your past professional life (if that is what you want!), and approaching something with reckless overconfidence, assuming you can burn those bridges now without consequence.
Should You Hedge By Keeping Your Day Job?
In fact, I would argue that sticking with your day job in the beginning is a necessary form of hedging. You are not hedging against your decision to become a trader in this case, but rather hedging against the possibility of failures early on. Trading is quite a challenging way to make a living, with a very steep learning curve and tons of pitfalls along the way. Expecting to make mistakes in the beginning is natural and wise. You probably will, and your day job will help you weather those.
Plus, you may not be making a lot of money to start with, and there is nothing wrong with supporting yourself with your day job while you work on building up your binary options account. In fact, for a lot of traders, this is going to be an absolute necessity. If you are opening an account with $500, and your average trade is making you something like $25, you are not exactly going to be rolling in Benjamins for a while. You need something to pay your bills, and you are not going to be able to pull it out of your trading account.
So yes—this form of hedging your bets is a good idea. It has nothing to do with a lack of confidence. Ultimately it just comes down to responsible and effective money management that will allow you to safely grow your account while paying your living expenses.
Forms of Hedging You Want to Avoid
The other forms of hedging I mentioned are problematic, though. They are ways that you hedge not against your possible mistakes, but against your choice to trade at all. Numerous traders use delay tactics, consciously or (more commonly) otherwise, in order to put off actually trading for real. These delay tactics may take the form of learning setbacks, or a refusal to fund an account or pull the trading trigger.
In short, this form of hedging quickly becomes self-sabotage. You think, “It is really hard to do this for a living, and odds are I am not going to make it.” You may not think it consciously, but when you act as if you believe it, you drag yourself down. This causes you to soak up information slowly, and may result in a lot of cycles of unnecessary ups and downs.
This kind of behavior is understandable, but it is also very detrimental to your trading career. All the while, it will continue to eat into your self-confidence, which can turn hedging on your abilities into a vicious cycle.
Binary options trading can get intimidating when you start getting serious about it. But committing yourself may actually be the hardest single step. Looking back over our lives, most of us can think of a lot of starts and stops with ventures we were passionate about, and times when we reduced the sum of what we were truly capable of, because we were afraid of throwing ourselves in completely and still failing. If you can manage to really throw yourself into trading, imagine how much more you could accomplish.
My guess is that a lack of commitment is one of the most common reasons why binary options traders end up washing out or burning out over time—especially those who otherwise have the right mindset to succeed. Everyone talks about self-discipline being the most important quality for a trader. I would argue that while it is on a short list of most important qualities, being able to make a commitment is arguably even more critical. After all, you have to make a choice before you can discover the discipline to see that choice through.
So should you hedge your bets on becoming a binary options trader? If you really want to do this for a living, my suggestion is to decide once that you will do just that. The word “decide” comes from the Latin, and translates literally to “cut off.”
In other words, a true decision involves mentally burning bridges—and you can’t hedge on that. So hold on to your day job, but try to let go of your self-doubt. Let that be the thing you cut off, not your income. That is the right way to manage hedging when you embark on a journey to become a professional binary options trader.