Friend Looking to Borrow to Trade?

Here is a problem looking for a place to happen.

Your friends see your success on the stock market. You teach them a thing or two and then they figure they can do it just as easily. Unfortunately, they have little money and proceed to ask you for a loan to help get them started. Sound familiar?

Just say no.

Do not even entertain the idea, even as they propose to split their earnings with you. Not going to happen. As much as you want to help, and well-meaning as they are to pay you back, what all too often happens is they blow up their account — and your loan — and guess who is left holding the bag?

Most often, this awkward situation leaves you with not only losing the money, but also your friend.

There are reasons this happens. First of all, money is held in a different esteem when it is not yours. Unless you earned it, it is impossible for you to have a concept as to its value, what pain and suffering you endured to get it. As a loan, even if it is never the intent, it could never be thought of as “your” money because you do not have the sweat equity invested in obtaining it; hence the reason it is so easy to lose. If you were trading your own money, you would be much more careful, and more so, if you had to work hard for it. For example, I know of one case where a trader had inherited a good chunk of funds and traded it away in a short period of time. I don’t think he had it for a month before his $45,000 was gone. When asked, his response was “easy come, easy go.” Admittedly, I lost a lot of respect for this gentleman as, had he taken better care, he could have turned that $45,000 into $90,000 and beyond. Imagine where he’d be had he ramped it up, and was able to pay off his mortgage or effortlessly put his kids through school!

I tell people on both sides of that equation not to lend/borrow from a friend. In fact, in most cases, you should not borrow from anyone. If/when you lose it, you are still responsible to repay it. Taking out further mortgages against your home to pay off trading debt is never a good idea, and usually does not sit well with your spouse either. The best thing to do is simply save enough to accumulate the seed money you need. Understand that you could lose it but ensure that should you lose, it does not affect your lifestyle.

That sounds counter to what we want, given that the goal is to make money. But the reality is, there will be losses, especially when a trader first starts, and that cushion needs to be built into the training.

Unless you are prepared to lose your loan money, it is best to explain to your friend how they need to have skin in the game. You will save your money and preserve your friendship, and isn’t that worth something?

I say this from first-hand experience. I had lent out $15,000 to a dear friend, never got it back and only when I forgave my friend for the loan did we start seeing each other again on a social level. That said, it was never the same. My friend told me repeatedly how embarrassed he was and that he’s struggling to repay me, but living hand to mouth as he is, we both realize it will likely never happen. Too bad, really; we had known each other a very long time. Money and opportunities come and go; friendships take time and effort to cultivate. You’ll want to hold onto them.

Our trades of choice are simple: one stock, the SPDR S&P 500 (SPY). We day trade options on this stock. The idea is to get in and out within a short period of time, often in only minutes. Our services include the ever-popular Trading Room, DTS Signal, Pick of the Day and the Inner Circle, each with its unique approach to making money on the market.

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Great trading!

Hugh