Trade with the market’s money, not with your own!


My best year of trading was 2008. But most of the money I got did not come from my day trading or scalping. Although those methods also worked well that year, most of my profits came from a single trade. A single! I earned more with that trade than I had in the previous three years. This experience was a kind of breakthrough for me.

These are the kinds of moments when you discover completely new possibilities. That was the case with the one trade with which I made a six-figure sum. It was the time of the financial crisis. Lehman Brothers were broke. The stock markets had plummeted. Almost everyone was sitting on big losses, while I was able to reap the biggest profit of my trader career because I was standing on the other side.

No, I was not short in stocks, even though that would have been an excellent idea. It was long in silver. That was my only position at that exciting time: long silver. I was convinced, that in a crisis of confidence of this magnitude (subprime crisis), it would be a good idea to buy a so-called “crisis currency”. Investors like to park their money in markets that are considered safe havens in times of turmoil. Traditionally, these are precious metals, especially gold and silver of course, but also currencies of certain countries, such as the Swiss franc or the Norwegian krone.

At the time, I did not understand that this also included the US dollar. Escaping the risk usually helps the markets that are considered relatively stable or “low risk”. I chose silver because I assumed silver would outperform gold in this crisis. This assumption turned out to be correct, but unfortunately, it did not really materialize until three years later, when silver climbed to stratospheric heights in the wake of the Euro crisis. Still, my silver trade of 2008 was a success, though the movement on silver in early 2008 was modest compared to what happened in 2010-2011.

I started building smaller positions in the range of around USD 13 or USD 14, during the subprime crisis in late 2017. These first positions turned to profits, quickly and easily. After a few days, I already had a book profit of over USD 1000. Not bad, you might think, and under normal circumstances, I would have been happy with that gain, and I would have sold the position. Incidentally, I did not intend to keep that trade going for long.

I gladly admit that the trade was intended as a day trade. Once the position had gained nicely, I thought: why not keep it going a little longer and try to get more out of the trade? And indeed, silver rose the next day, and I had the courage to buy another contract. But you have to be aware of the hysteria of those days. The media was full of bad news, not to say catastrophic news. The stock markets plummeted worldwide.

And when the news of the Lehman Brothers bankruptcy on the ticker came on September 15, the dam broke. The crisis was complete! My silver trade, on the other hand, did very well. The more the silver price rose, the more contracts I bought. A few days later, I already had five-digit in profits. But, if you are now thinking that such a profit would lift you to a permanent state of elation, you are mistaken. Prices do not go straight up (I wish they would). Not at all. When markets go wild and volatility picks up, prices fluctuate so much that they can go just as wildly the other direction. I remember that my silver position was USD 17,000 in profits one morning, and only USD 12,000 in the afternoon, due to a correction.

A book loss of USD 5000 in just a couple of hours! That was much more than I would allow myself under normal conditions. But you have to be able to live with that if you want to increase your position systematically. Let me point out that I did not have a smartphone at the time (I’m a bit old-fashioned). Having a number of contracts in a trending market is a disconcerting thing (actually, great success is also somewhat disconcerting, which is why most people prefer to live without it). So I had to open my laptop every time, to see what was happening to my silver position. At the beginning of January 2008, silver struck a resistance of about USD 15. This resistance had lasted for two years. I had placed several stops buy orders above this level, all of which were executed when the outbreak came. Soon I had doubled my position again. Now it became really exciting.

The fluctuations in my account were now quite wild. Within a minute I was several hundred dollars richer or poorer, and soon it was to be thousands of dollars …

I remember well that I felt I was on the safe side with this position. I knew that I had a winner and that all I had to do was rigorously trade the upward movement in silver.

This was an extraordinary situation because I had only a few thousand euros in my brokerage account. I used it to experiment and perform occasional swing trades if I saw an opportunity. If I remember correctly, I had about EUR 2,700 in that account. Not much, considering that, thanks to this one silver trade, I eventually had a book profit of more than EUR 40,000. So, within a few weeks, I had made more than 1,000% profit, thanks to the leverage I used, and the fact that I traded with the money that was on the market. That was the whole secret of this trade. I did not trade with my own money.

I traded with the market’s money. I suggest that we take a closer look at this because some readers might not understand what I am saying. If you buy a property and finance 70% of it, you are basically not buying this object with your money, but with the bank’s money. The bank pays for the major part of this property because it considers the property as collateral, and the house remains the property of the bank until the last installment has been paid. Something similar happens in the stock market, once you have book profits. As long as you do not realize these book profits (you do not sell your position), that money does not belong to you, but to the broker.

However, this book profit allows you to buy additional contracts because they will be credited to you through the daily settlement. So, this book profit allows you to buy a larger position than you would normally have been able to buy with your small capital. This is comparable leverage – as if you were buying a property with a loan from the bank. And, of course, you cannot call your accumulated book profit your own until you sell your position and earn the profit. But, as long as you do not sell, you can continue to buy, provided you are still right in terms of the market direction, and the trend continues to grow in your favor. This approach is very different from closing your position every day and reopening it the next morning (which is what a day trader does, for example). At first glance, day trading seems less risky, but it is easy to forget that, every day, the trader carries the whole risk. He risks his money every day. His own capital is fully at risk.

However, if you do as I did on the silver market in 2008, at some point, you will no longer be risking your own money – you will begin to speculate with the market’s money (thanks to your book profits). Technically, you may not see the difference, but in terms of risk management, the difference is huge. As soon as your first purchased contracts run into profit and your book profit increases, you have a “free trade”, so to speak. From that moment on, you can use your book profits to expand your position. So you do not buy with your own money but with the market’s money (or with the bank’s money, if you will).

Moreover, I think that you should not keep the leverage on your position too small when you find yourself in this comfortable situation – quite the contrary. From now on, you should really grab the ball and expand your position seriously, because that is the only way you can make real financial progress. The same is true for the clever real estate investor. He does not buy his properties with his own money. He buys them with the bank’s money. And the more properties he owns, the more he buys. It is a proven concept. If you research a little, you’ll find that, apart from those who have built a successful business, most rich people have become wealthy with real estate. Over the course of January and February that year, silver rose to over USD 20.

While it was on its way to the top, I bought more contracts. In the end, not as aggressively as in the beginning, because, after studying the chart, I had the feeling that, at some point, silver was going to reach a peak, and then the inevitable correction would occur. This feeling was soon to come true. In March, silver reached its high.

The volatility was almost insane. I started selling my contracts and locking in my profits. In hindsight, I sold a bit too late and lost out on some of the profit I could have made. But in hindsight, you are always smarter. The trade was a big success, and I was able to live on that kind of money for a long time. After I had closed the position completely, I did not do anything for months. It took time for me to recover from my own success. Anyone who believes that success is something great and simple is wrong. It is really scary because you are confronted with something that is unknown to you. Something that is much bigger and more powerful than you.