The prospects are very promising for aspirational traders in the retail space range from hedge fund creation to signal provision, and everything in between. Regardless where you sit on this spectrum, there are certain criteria which you must be able to fulfil:
- Profitability: You need to be able to demonstrate consistent profitability over a period of time. This period will obviously be a lot shorter for signal providers than it will be for aspiring hedge funds. As a broad rule of thumb, traders who can show a return on capital of around 20% per annum consistently will have a very profitable career.
- Drawdown history: There is no point in showing a 25% return on capital if you are also showing 10% monthly drawdowns. No serious investor will consider you. Keep your monthly and peak-to-trough drawdowns at manageable levels.
- Strategy: You must be able to explain your trading strategy.
- Risk management plan: You must have one and you must stick to it.
- Licensing: Becoming increasingly important for all market participants. If you don’t have one and can’t afford to get one, then it’s best to come to an arrangement with a licensed entity to operate under their umbrella.
- Transparency: One error of judgement can cost a career! Don’t exaggerate or ‘forget’ to include certain non-complimentary data! Any relationship between investor and trader must be built on trust.
There are some really exciting opportunities now in the retail space and in most cases it’s simply a matter of ticking all the right boxes.