Collective trading or how to be on friendly terms in the market so that not to be trapped

The modern world pays huge importance to the team work: it is assumed that it increases the efficiency of each participant and improves the final result. Considering the high risk of the financial markets, the idea of combining intellectual and trade efforts seems reasonable and perspective for many people.

Of course, you can find a rational kernel in this thought, but the reality proves that long, honest and mutually beneficial projects of the collective trading occur not more often than a white shark in the Swiss Alps.

Market survivors say: the one who is able to trade – opens a trading account; the one who isn’t able to trade (as an option – doesn’t want) – creates an investment fund.

Why is this so?

Who is this article good for?

It is recommended to all (for the general development), and especially to those who expect that collective trading allows:

• to consult with a more skilled colleague constantly;
• to trade a large sum (by means of the collective investments);
• to receive the qualitative market analysis for free;
• to guarantee the round-the-clock control of the transactions;to solve the problem of the workplace organization;

and other tasks which are planned to be solved thank to the collective intelligence …

Let’s get started, but before it, we will note …

Basic moments

We don’t consider different types of financial pyramids and hype projects as collective trading.

We consider transactions of the trader, who trades as a permanent staff member of banks, hedge funds or other organizations, as hired labor − such participants are rigidly limited in trade actions.

Team trading demands constant exchange of information, which means that the participant shouldn’t feel psychological discomfort because of the fact that someone can earn money by using his/her opinion or trade idea.

We consider all conclusions as the personal author’s opinion which doesn’t cancel a possibility of the creation of successfully working projects of collective trading at all.
Let’s review the main groups of traders from the point of sharing ideas, people and money. So …

Forex-Cult

People: beginners without experience or with negative experience; different kinds of idlers searching for quick earnings.

Capital: personal trading accounts.

Process: Among participants, here are usually those people who don’t see the difference between co-education and collective trading. Here always must be a Forex-«Guru» who «generates» «super profitable» signals (options: advices/strategies/analytics).

Active advertizing and a set of small bonuses lead to the fact that information from the genius is firstly distributed for free, then becomes conditionally free, and as a result – it is sold as a commercial product. There is no understanding of methodology: participants receive signals and trade on them without thinking.

“The surest way to ruin a man who doesn’t know how to handle money is to give him some” – George Bernard Shaw

Result?

The smartest beginners take the most valuable info from «guru’s» ideas and leave the group quickly enough, with their deposits kept (at least partially). Those, who have remained, continue to lose money actively.

Forex-Business

People: developers of the technical and business applications − programmers, traders, testers, managers.

Capital: personal and corporate deposits (as a rule, of different brokers), PAMM-investment.

Process: trading is realized in order to check own developments and advertising and, as a rule, on small real accounts. Transactions on corporate PAMM or LAMM accounts are considered one of the variants of such collective trading, but they also serve for the purpose of testing and have the minimum risk. It is possible to test technical developments of the client with the further analysis and improvement (a great example of such collective work in nature).

Result?

It is a quite viable business project in case that its main income is planned to be gained from the sale of commercial products. To keep the team, participants need to be stimulated constantly, with money and creative ideas. For this purpose, the money from the corporate accounts is used, which is shared as bonuses and is invested in the business development.

Forex-Hangout

People: active beginners with the minimal experience who study the market independently.

Capital: small personal deposits or a joint trading account made from a set of small investments.

Process: Search (mostly useless!) is expressed in attempts to trade using different assets, strategies, periods. Money management is weak (or equal to zero). Everyone tries to learn something from others, but nobody shares really profitable ideas. There is no time for trading – there are constant discussions (an excellent example − the famous cartoon − watch all!).

Result?

The group is quickly divided into weak and strong members. Weak members use ideas of others rather than study. More capable and spirited ones leave the group, and a small group of weaklings either scatters or «sticks» to a new leader. Financial result is quickly negative.

Forex-Family

People: relatives, 2-3 persons (bigger groups are also possible), who have different trading experience, but approximately identical financial level.

Capital: Deposit consists of small investments which have different «history». Sometimes it is a surplus from which no super profit is being waited for, but most often it is the only reserve with which all plans for prosperity are connected.

Process: Have discussed. Have counted. Have begun to trade. Questions of the profit sharing (according to the labor and participation interest) have been kept for «later». The first negative impression obtained from losses, as well as the profit sharing with participation of the persons who don’t trade, but who are interested in it, completely stops the trade.

“A friendship founded on business is better than a business founded on friendship” – John D. Rockefeller

Result?

90% of such projects become ruined within 2-3 months: not only trading, but also friendship, and sometimes even family relations come to an end. «Exchange» projects with participation of the relatives aren’t recommended at all, because inadequate expectations of the «super profit», constant control and criticism of trade decisions ruin any idea.

Forex Club

People: a group of traders with different level of experience and deposit.

Capital: there are no common money or trading accounts traded on the general signals.

Process: Informative and noncommittal communication (websites, forums, personal contacts). Effective exchange of experience, discussion of the trade ideas, strategies, and advisers; professional advice, help in search of mistakes. Traders of the group trade (or don’t trade) absolutely independently.

“It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction” – Warren Edward Buffett

Result?

It is he most stable model of collective trading. Each participant receives professional analysis of the market and communication with more skilled colleagues – it allows to estimate your own actions more effectively. At the same time, there is an active exchange of information and trade signals without any mutual obligations.

Organizational problems of collective tradin Inefficient list of participants

Reminder: not only beginners think of the idea «to be on friendly terms and trade», but also «misunderstood» geniuses, ambitious losers, any idlers and just flabby persons who can’t make decisions and be responsible for them.

It is difficult to reveal such «friends», as well as to get rid of them, especially, if they have already deposited some money into the general project.

How to treat?

The team project supposes that all participants equally understand common goals and tasks. But if someone has come to work and earn, while someone else is only interested in the process, but not in the result − the conflict is inevitable. If a participant doesn’t work effectively, a rigid rupture of the relations and division of the capital is necessary.

Fear of decision-making

Brainstorming won’t help if it is necessary to make a decision in several seconds. In a group, there are always more people who consider it easier to accept the opinions of others than to be responsible for the own ones. The fear to face charges for a mistake and a chance to accuse someone else of the general losses destroys partnership relations.

“Nothing in life is so exhilarating as to be shot at without result”
– Sir Winston Leonard Spencer-Churchill

How to treat?

It is necessary to get rid of such participants even if it threatens with closing of the project.

Misunderstanding of collective responsibility

The goal of the exchange is the money redistribution between different pockets. Everything is simple and rigid: if you have a profit, then someone have a loss, and it is possible that it was his last (or problem) money. There are people absolutely intolerable of risk, moreover, if these losses are the result of the collective trading.

Inhabitants traditionally confuse responsibility with a concept of fault and subsequent punishment; but responsibility in business doesn’t coincide with an ordinary concept. As a result, even one participant, who moralizes too much, can effect negatively on the team work.

How to treat?

Don’t use any problem money in the project and don’t work with morally weak investors and traders.

Incorrect estimation of the result

This factor is even more dangerous than the real losses because profit is always general, and mistakes are always personal. Millions of business projects (for example, trade deposits) have been ruined during the process of the first profit sharing and finger pointing. The trade decision is made by a certain participant: and if the loss is always perceived as his personal mistake, then in case of the profit, each member of the team applies for a part of prize money.

How to treat?

If there is association of the capitals (at any form) in the project, then the mechanism of the loss/profit distribution and the money management rules have to be rigidly fixed by the official agreement of each participant. Then any claims and even discussions on this subject aren’t allowed. Chronic rule-breakers, irrespective of the trade result, should leave the project of collective trading.

And what is the result?

Mark Douglas in his well-known book «Trading in the Zone:…» noted that «collective unconscious» (according to Freud) in the exchange trading shows an extremely high tendency to hysterics. The reality proves that collective intelligence of the small traders can be effective, but is mostly unstable. Each participant of the group looks at the market in a different way (and at the money management too!), therefore the profitable team trading, especially on the general deposit, has practically no chances.

You shouldn’t turn your necessary professional communication into mutual obligations. Collective trading can be useful, but only in the initial phase. The trader who has undergone elementary training, survived at the stage of the first losses, and who has a personal trade strategy with stable results, doesn’t need a team. However, it’s up to you to decide.

Try It Yourself

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