What is a business?
A google search about what is a business will give us various definitions of businesses. A business can be defined as an organization or entity engaged in commercial, industrial, or professional activities.
Businesses can be either for-profit as well as non-profit, but we will only focus on the for-profit business for the sake of this blogpost. A for-profit business is one that engages in activities with an aim to make a profit i.e. they must be left with some amount after deducting costs.
A business basically is an activity carried out by an individual or a group of individuals. The activities that they engage in could be narrowed down to that of selling goods or services for profits.
Essentials of a business
Just knowing what a business is, is not enough, one ought to know the requirements of a business, what it entails, what it requires to make a business successful.
Every business has some objectives, some ambitions for the future, something that it seeks to achieve. Objectives of businesses dictate whether it attains success or not.
These objectives must be well laid out and clearly described. Objectives could be both primary and secondary but should be realistic. Every moves that the business makes, must be in the direction of these objectives.
Having an objective or a vision for the business is incomplete without any plan to achieve it. Planning is the rational thinking about means to achieve the goals or the objectives.
Planning is not limited to the achievement of objectives but also to tackle various problems that arise in due course of time. A plan in place to find solutions for such problems allows smooth functioning.
We know that a business is an activity of either selling goods or services, but how would the company know which good or services to sell and which customers to target.
Research is an essential factor that businesses have to look after. It is only through research that businesses can gauge the market, competition, demand. Research is not a one-time affair, it has to be conducted often.
4. Adequate finance
Every business requires some capital to start with. This capital covers the costs of setting up the business, acquiring infrastructure, personnel, etc.
Adequate finance allows businesses to stay afloat during bad business times. Inadequate finance can also lead to losses incurred by businesses. Hence, businesses must have adequate finances in order to meet short-term and long-term requirements.
5. Effective management
In a business run by a group of individuals, the importance of good and effective management is quite evident. Every business has a hierarchy in its management with someone having a higher post than another.
Effective management is when managers track the progress of their subordinates and help them improve their performance, while the managers themselves are competent enough.
In a business run by a single individual, he is his own manager and ensures that he stays on track and doesn’t deviate. He is accountable for everything he does.
How is trading a business?
By all that we have already discussed might make this blog post seem more like business studies one than a trading one. But before we actually got to the main focus of this article we just wanted to set the foundation and then build upon it.
Business is an activity carried out by an individual or a group of individuals and this activity is basically of selling goods or services while hoping to make a profit at the end.
Let’s break this down into parts, business is -
- Carried out by an individual or group of individuals
- Basically of selling goods or services
- To make a profit
And now let’s compare this with trading, trading is mostly one individual thing, but two or more individuals can always trade together. The main focus of trading is to make a profit after buying and selling the financial assets.
Coming to the part of selling goods or services, traders don’t sell anything but let’s look at goods and services in a different way. Goods and services that are sold by are businesses is what earn the money for the business and for traders, their trading setups are what earn the money for them.
Get the link already? A trader’s trading setup or plan is his service or goods. Hence, trading is a business? Yes, but let’s discuss more on this.
We have mentioned the essentials of a business, objectives, planning, research, adequate finance, and effective management.
Individuals that indulge in trading activities, may do so for various objectives, it could be for capitalizing on the price movements of financial assets, for the freedom trading offers, flexibility in the professional life, etc, but is all done with some objective which is best known to them.
Before a trade is placed, traders are expected to have some kind of plan to justify the trade. A trade plan gives the rationale of the trade as well as the entry, stop loss and take profit price levels. A trade plan is key to successful trading.
Just like research in business, trading requires some research too. Traders spend hours of screen time to research the various financial assets that are available to them for trading and they put in the time to spot trading opportunities.
As to the adequate finance part, there is no blanket definition for the same in trading. The finances that a trader ought to have are different for the type of trading they are involved in.
In forex, traders can start with as low as $10 but in other markets, traders require some considerable amount to enter into trades. Different strategies require different levels of capital as leverage doesn’t help the traders at all times.
Traders that look up to trading as a means to additional income can start trading with lesser capital and look to scale their account as they progress.
On the other hand, the traders that look up to trading as a full-time affair will require larger capital in order to have their profits pay their bills.
Traders that trade on their own are their own boss. They are accountable to no one but themselves. Hence they have to effectively manage themselves and ensure that they stick to the plan and keep following the right track.
Summing it up
We have discussed what businesses are in general and some of the essentials of businesses. We have broken down the definition of a business and applied the same to trading.
Just like businesses have some essentials, trading does too. There are lots of things that traders have to ensure they follow in order to increase their chances of success.
Even though the essentials of businesses may not match those of trading exactly but they are all laid down on the same lines.
As we mentioned earlier that trading is the hardest way to earn easy money, it should be taken seriously. Businesses are considered to be serious activities as individuals spend lots of time, energy, and money in order to build it. The same should be the approach to trading.
The times we live in today have never been more global. The internet has made almost everything accessible to individuals around the world. Trading is one such thing that has only become easily accessible.
There are not many barriers to entry in trading. Individuals only require a trading account with a broker and they can trade in any market and any financial asset they like.
All this easiness around trading has resulted in individuals taking it for granted. Getting started in trading might be the easiest thing, but surviving and staying in this profession for long is definitely not as easy.
There are big institutional houses and players that dedicate large capital to the financial markets. Many have separate trading desks, risk management desks, accounting desks, and even different departments for different markets and financial products.
If such individuals can treat trading right by taking it seriously, then it is quite foolish to take it for granted.
Every business has some or other risk associated with it and there are always chances of things going south. Trading too has risks involved, but fortunately, in trading, it is possible to manage the risks.
Any individual that looks to participate in the financial markets must do so only after knowing the ins and outs of this business. It is always better to be prepared before taking the plunge.
We would appreciate it if you let us know about your views on this topic and how you approach trading. We look forward to engaging in fruitful conversations with our readers.
If there are any topics that we do not already have a blogpost on and you would want some content on then do let us know, we will take note and put it in process.
We welcome all questions and suggestions from our readers and we make sure to revert to it at the earliest.