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Bootstrapping

Trading as a business may be difficult to start if you have little money. In the past, I tried to raise cash for my trading business, but this endeavor is something nobody will ever believe you or trust you with. It looks like times when people like Warren Buffett collected money from his friends, invested them and made them rich are gone.

I do not have such friends and public will not trust you at all.

How much money do you need for a stock market trading business?

How much money would you need to start your trading business? It depends. If you want to live off of your investments you would need at least $150,000 to start with. This amount is of course needed for trading options. If you want to invest in dividend stocks instead and live off of the dividends, you would need a lot more than that.

Let’s say you build a portfolio of dividend stocks which delivers you 4% annually and you want $50,000 a year income, you will need at least $1,250,000 to get there. This is a life time effort and if you want to go this direction, you need to start early and be very aggressive in saving.


If you are like me who started late, you need to adopt other strategies which will help you to get there. I believe, options are such strategy. My options trading strategy I recently adopted is set to deliver 7% weekly gain. That’s 28% a month! Or 336% a year. But let’s say not all trades will be profitable and I will only make 60% a year. How much money would I need to live off of my trading?

If I only want $50,000 a year, it would be $83,300 account value to make $50,000. Of course, you need more to make money for taxes, fees and some reserves to grow the account. Thus $150,000 is ideal amount to start trading for a living. There is one more benefit to that amount. You can apply for portfolio margin (a lot less margin requirements) and get better deal on commissions too.

Of course, if you can get more than $150k, good for you.

Raising money for trading is difficult

Now, that we know how much money is the best to start with, the question is where do we get that money if we do not possess them in the first place. Getting money for trading business or investing is extremely difficult. Nobody will trust you and nobody will fund you.

Even if you try to start a hedge fund and take all required exams and licensing, you will not be able to raise cash without track record competing against already existing funds. And even if you decide to compete, it will be difficult to put your couple thousands of dollars against millions of dollars in existing funds.

And if you decide to be the only owner of your business and investor at the same time, you still run into an issue of being underfunded.

In the past I tried many approaches how to raise money. I tried to ask friends, family, personal loans, business loans, angel investors, and crowdfunding. The result? Laughter. All I could do is to save and use my own money.

What is bootstrapping?

Bootstrapping is just that – raising money by an entrepreneur himself from his own resources (personal finances) without investors. If you put your own little capital to work and reinvest the profits back into the business to grow it all on your own, you are bootstrapping.

It looks like that trading business is doomed to this kind of funding style. Unless you are a genius make incredible profits immediately from day one, work in the financial industry and attract immediate attention.

I am not such person at all but rather a regular, unimportant guy who wants to accomplish his dream and had to learn trading the hard way by losing his little capital. My fate is bootstrapping.

But I wasn’t just dreaming! I was also actively searching for ways how to raise capital for trading. I found two possible ways and I plan on using them at some point.

Borrowing money against your possessions like a mortgage

When purchasing a house, you borrow a lot of money and use your house as a collateral. I wouldn’t borrow money against my house, but I would do that against any other stuff I own and I do not care that much if I lose it. Trading business can be risky and I can lose money (and it happened), so the house wouldn’t be the right possession to use a loan against it. Although, I know at least one investor from StockTwitts who admitted that he did it and took a HELOC loan against his house.

I am a bit more conservative and I wouldn’t use HELOC at the beginning phase of bootstrapping. Once the business starts generating a consistent revenue, it could be a good source of funding, but at the beginning phase it can be dangerous.

What other property can you use then? I found a good option recently which can be beneficial to you twofold – a loan against your car (car title loan). You can borrow money against your car, fund your business and help your credit score at the same time. And if you happen to fail, you lose the car and not the house.

We have two cars in our family. I do not need mine so badly as my wife, so using my car as collateral would be a viable option.

Credit card cashing

Carding or credit card cashing is typically referred to a credit card fraud. This is not what I have on mind. Recently I found an option how to cash your own credit card without the transaction being treated as cash advance.

There are a few businesses out there who provide this service for a fee. They send you an invoice, you pay that invoice with your credit card and they send you back a check with hard cash minus their fee (plus the card transaction fee).

When I was in a process of applying for a business loan the loan provider offered me this option how to cash the credit cards. I do not remember the exact name for this type of cashing the cards, but I liked the idea.


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If you have your own business, which should be a completely separate entity from you, why not use this strategy directly on your own? Recently, to test the waters, my own trading company sent me a small invoice which I paid off using my own credit card.

Now I have a hard cash in my checking account and a purchase transaction in my credit account. And in the transaction list it is recorded as a purchase to ZZ Capital Management, LLC.

Of course, there will be a small fee to my card processor, but I am OK with that.

I plan using this strategy to fund my trading business, but also not right away. I will be testing it first with small amounts only but use it in full once my trading starts generating sustainable income. I need some cash flow first to be able to pay off those loans.

Of course, if I use a credit card and take out for example $4,000 and then pay it off slowly over time, there will be interest involved. My creditors charge me in average 16% annually. If I make 60% annually, I still end up 44% profit left. In that case, even a credit card loan is a good loan to me.

The long story short, two conditions must be met to use this strategy:

 

  1. have regular monthly income from the business
  2. make more in revenue than the creditor charges in interest

 

Of course, you shouldn’t do it, if you make 3% and CC charges you 23%. It would be a losing game. And costly.

What do you think about funding a business such way? Is it a good idea or crazy gambling?
 





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