Recover from the Red: Nathan’s journey through trading losses

Investors usually enter the market to put their money to work and build wealth, but some end up with debt instead.

Meet Nathan, a 46-year-old Senior Engineer earning an income of $84,000 a year and owed a total of $115,000 to 9 financial institutions. The main cause of indebtedness was due to losses from margin trading.

Nathan’s first contact with stocks and shares

“I attended a few investment courses, opened trading accounts, and traded in both local and international stock and shares. Most of the time, I traded on short term basis by buying and selling within the day through margin trading.”

“Unfortunately, I suffered losses when the market turned against my trading strategy, and I had to draw from credit cards to top up the margin to continue trading.”

Nathan’s trading losses amounted to about $85,000 but his credit card was tapped on for other uses as well.

“I also spent on lifestyle such as buying branded goods, personal grooming courses, and clubbing.”

Accepting his debt as a problem

The first step of solving any problem involves acknowledging the existence of a problem. Nathan came to this realisation when he discovered that he did not have enough money to pay his credit card bills.

“I realised I have a credit card debt problem when my monthly salary is not even enough to repay credit card bills!”

“I shared with my family. They tried to help me financially, but the amount is still not enough to repay my debt.”

A lesson learnt, the hard way

Through his debt repayment, Nathan learnt to put more effort into managing his finances and even developed a financial goal!

“I must be watchful of my expenses, spend within my budget and follow the repayment schedule worked out by CCS.”

“[After completing DMP], I will save the amount towards my retirement.”

A word of caution: Investing vs Margin Trading

Investment is not quite the same as trading. Investment generally refers to a more long-term and stable holding, aiming to grow wealth by accumulating assets.

Margin trading, on the other hand, refers to the strategy of borrowing money to trade financial instruments, such as stocks or foreign exchange currencies. In margin trading, a trader borrows money to acquire a larger position in a financial asset than they could with their own capital alone. The borrowed funds act as leverage. While margin trading can be a powerful strategy for experienced traders, it comes with higher risks due to the potential for significant losses.

According to Forbes.com, the “overwhelming majority of day traders lose money”. Although there are successful traders who “are able to generate steady profits, these are generally people who had careers in the financial industry or who have devoted themselves to studying markets.” (Source: https://www.forbes.com/advisor/investing/what-is-day-trading/)

To get started on learning about personal investing, begin with a credible and objective source of information. You are encouraged to refer to the MoneySense website, which provides a good introduction to the types of investments, how to put together an investment portfolio, and manage investment risks. You can access the full guide here: https://www.moneysense.gov.sg/investments/types-of-investments/

A note on MoneySense

MoneySense is Singapore’s national financial education programme, with the aim to help Singaporeans to manage their money well and make sound financial decisions on their own.

MoneySense programmes are overseen by the MoneySense Council. The Council is co-chaired by the Monetary Authority of Singapore and the Ministry of Manpower and comprises representatives from various government agencies.

Credit Counselling Singapore

Published 24 November 2023.