Courses 1Lesson 1

Don’t Borrow Your Starting Capital

Let me caution you against a practice I have witnessed on a number of occasions during my years in

the futures market.  It has become more and more common for individuals to borrow money in order

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© 2000 MBH Commodity Advisors, Inc.

to speculate in futures.  Specifically, second mortgages or home equity loans are often used for this

purpose.

I recommend you do not consider this foolish behavior.  There is no sound judgment in such behavior

and the results of such actions can be disastrous.

The individual not only places him or herself at financial risk, but jeopardizes his or her trading by

using funds that should not and cannot be placed at risk.

Certainly it takes no great insight to see that the trading decisions of the speculator will be based on

fear and this will seriously affect his or her judgment.

Another pitfall to avoid is the following mental trap:  “I’ll put more money into my account than I

intend to lose, but the rest will draw interest and, of course, I will watch the money closely.”  As

I explained, this is a rationalization based on unrealistic thinking.

Even with the best intentions, when “extra” money is in the account, chances are it will be used for

trading.  Put into your account only what you can afford to lose in its entirety.

Don’t be fooled by the lure of interest rate earnings on the unused funds, especially low-risk trading

programs, fail-safe programs, “no risk” option strategies, minimal risk spreading programs and a host

of other seemingly simple “minimal risk” programs.

I’ve seen them come and I’ve seen them go.  There are some big winners, but there are many, many

more big losers.  Do not accept the claims of any trading system, your own or that of someone else, as

the basis for deciding how much of your money you will place at risk.