Guest Post by John Forman, Currensee.
"WANTED!!! Free Internet Videos/Materials Regarding Winning Forex Strategies/Methods!"
That's the title of a thread on the Currensee member discussion board. It seems like everyone wants something for free these days. I've certainly got no problem with people being thrifty, especially in these challenging economic times, but "free" is never free. Everything has a cost. It's just a question of how you measure it. I've written on this subject previously (see When Free Isn't and Paying Makes Much More Sense), but it's a subject which comes up on a regular basis, so is worth commenting on again.
First of All, Think Like a Pro
A while back I was involved in a meeting with my group manager and the guy I consider in many ways to be a trading/markets mentor. In it we were talking about how different types of market participants view information and resources. The average trader/investor thinks of things like price data, analyst reports, education and all the various goods and services related to trading and investing as expenses. They are always thinking first about how much something will cost and are continuously trying to get something free or on the cheap. The professional trader/investor has a very different mindset. He asks the question how much money a service or product can help them make, or help them save through improved efficiencies and things like that. It is only after they have considered the benefit that they consider the cost. If it’s a good return on their money, they go for it.
In other words, professionals are looking at all of their decisions vis-à-vis their actions as market participants as investment decisions while the average person only looks at their actual buys and sells in the market that way (if even that, at times). This is one of the reasons why the average trader struggles.
Lest you be tempted to say that the pros only spend money because they have it to spend, let me tell you that investment banks and trading operations can be some of the most penny pinching folks you will ever find. They are constantly looking for ways to cut costs, which means they will only spend money on stuff they know will help them make or save money in their operations. Every expenditure must have a solid business case.
Consider this. We were talking about pricing for our analytic services – the one I currently work on and the one my mentor current runs. His is one directed toward portfolio managers in a very customized fashion and he charges $1000+ per month for it. The one I’m on is much more immediate and real-time in nature with a target audience of institutional Sell-Side folks and prop traders. We charge about $300/mo per user for it. When we talked about those figures, my mentor laughed at how relatively cheap they were. He, of course, looks at it from the point of view of how much money he could make off of the information and analysis we provide the user. It is certainly well in excess of what we charge.
Now you might be tempted to think of professional and non-professional traders in terms of whether they trade for a living or are employed to do so. That’s one way to look at it for sure. A better way, though, is to think of it in terms of their approach to trading. Professional traders treat it as a business, regardless of whether it’s their living or not.
If you want to get the most out of trading, treat it like a business and consider every decision to spend or not spend money on your trading as an investment decision for your business. Also remember that you generally get what you pay for – as in anything else.
Second, Remember that Your Time is an Expense
A big argument for free comes from folks who don't consider the amount of time they put into obtaining something, learning it, and getting it into a usable fashion as part of the cost of that information or product. If you don't factor time into your cost equation then you are definitely being wasteful.
Let me make my point by way of example. You can take 10 hours of web searching and poking through trading forum sites to find a certain bit of information or you can buy a book for $30 which provides you the same info without having to do all that searching. Which is the better way to go? For me the answer is very easy. It's the book. If you consider your time worth more than $3/hr – and I certainly hope you do – then your answer should be the same.
The more your time is worth to you, the more in makes sense to buy the book and save the time. If you cost your time at $10/hr then the book saves you the equivalent of $70 (10 hrs at $10/hr = $100 - $30 = $70). My guess is your time is worth much more than that. A $10/hr wage is equivalent to an annual salary of about $20k/yr. That's not even entry level in most fields. Also, remember that we're talking about your leisure time here, not your work time. That means the search time comes at the cost of doing something else, like being with friends and family. You might reasonably call that time worth $100/hr. If so, buying the book saves you the equivalent $930.
Thirdly, Know the Value of What You're Getting
Here's the other part about free stuff. While it can certainly be quite usable and valuable, oftentimes it's not presented in the best way and you don't know if it's coming from a credible source. You need to account for the differences in how much time it will take you to absorb and integrate the information as well.
For example, trading forum sites have loads of information on them but you usually don't know much about who's offering it up, you probably have to wade through all sorts of useless stuff to get to it, and it wasn't posted in a fashion which is designed to make for easy understanding and application. They're largely a bunch of folks offering up stuff from their experience – some of which is completely wrong (and potentially dangerous), and much of which is slanted by their own personal views and biases. That means taking time to figure out what is useful and what is garbage before you can apply what you learn, and sometimes you won't figure that out for quite a while.
The point is that when someone takes the time, and puts in the effort to write a book (or develop a course, etc.) - and especially when it's published by a reputable publisher - you can have a degree of confidence that considerable thought was put into the presentation. Does that mean every book, course, seminar or whatever is a great educational resource? Of course not, but at least there's much more transparency about who's providing the information and what is being said so you can make an informed decision.
In terms of something like a trading system, remember that in order for you to be able to confidently apply the system over the long run you're going to need to spend time getting to know it and understand it and how it integrates into your trading. That is going to be easier if it's presented to you in a form which shows very specific past performance and allows you to go back and see how the trades did individually. If you just get "buy here, sell there" then you're going to have to take a great deal of time getting to know the system's ins and outs before you can really settle on it. That means a time cost which should be accounted for in your figuring.
Final Thoughts
Now don't take this all to be a suggestion that someone with a $500 trading account should go out and spend $2000 on a weekend seminar or trading EA. It just doesn't make sense from a cost/benefit perspective. They would have to quintuple their account just to make that expense back, never mind turning it into a positive, and the odds of that happening are extremely slim. If, however, the same trader were to spend $100 on something that could help them double their account in the next 3-5 years, it could be an excellent investment.
The bottom line is think about both sides of the equation – what you're getting and what your upfront and future costs are – not just about one or the other, and not just in strict monetary terms. That doesn't mean free resources should be shunned, just that there really isn't any such thing as a good or service without cost. Also realize that you'll probably never value things you get for free as much as those which have a clear cost associated with them. That can lead to things like bouncing around from system to system or method to method, which can cost way more money in market losses than you'd have spent for information with a price tag attached.
