Trading on the Side: What Founders Should Know Before Mixing Markets and a Business

Plenty of business owners trade in their spare time. Fewer think through what it costs them in money, tax and attention.

Running a business and trading the markets attract the same kind of person: comfortable with risk, quick to act and confident in their own judgement. It is no surprise that many founders open a trading account at some point, often after a good year leaves them with spare cash and an appetite to make it work harder.

There is nothing wrong with that. But trading alongside a business raises a few questions that employees never have to ask.

What to expect in this article:

Whose money is it?

The first decision is whether to trade personally or through the company. Trading with company cash keeps profits inside the business but means gains are subject to Corporation Tax, losses sit on the company’s books, and lenders or investors may ask questions. Trading personally means taking the money out first, with the tax that involves. Neither is right for everyone, and it is a conversation to have with an accountant before the first trade, not after.

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The tax treatment depends on the product

In the UK, different products are taxed differently. Profits from share dealing and CFDs are generally subject to Capital Gains Tax for individuals, while spread betting profits are currently tax-free for most people. Trade frequently enough, and HMRC may take the view that trading is a business activity in its own right. The rules are not complicated, but they are easy to get wrong by assumption.

Attention is the real cost

The cost founders most often underestimate is not financial. Short-term trading demands attention at exactly the hours a business does. A position that needs watching during a client meeting is a distraction with a price tag. Many owners find that longer-term investing suits their schedule far better than intraday trading, because it does not compete with the day job.

If you do trade actively, costs decide the outcome

For those who do want to trade actively, the economics are unforgiving. Spreads, commissions and overnight financing are paid on every position, and for frequent traders they often determine whether a strategy is profitable at all. Comparing day trading platforms on the real cost of the markets you intend to trade, rather than on advertising, is the single most valuable piece of preparation.

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Know the odds

UK regulations require providers of leveraged products to publish the share of retail accounts that lose money, and the figures are sobering, typically well over two-thirds. Independent research publishers such as The Investors Centre test platforms with funded accounts and publish those numbers alongside real costs, which is a useful reality check before committing capital.

A sensible framework

Decide in advance how much capital you are prepared to lose, keep it entirely separate from business working capital, and set a limit on the time you will spend. Treat it as you would any other venture: with a budget, a plan and a review date. A business owner’s biggest asset is almost always the business itself, and trading should never be allowed to put that at risk.

Trading leveraged products carries a high risk of losing money rapidly. This article is general information, not financial or tax advice.