The "How to Get Rich" Lesson I Learned on the Trading Floor in Chicago

Shah Gilani

Editor's Note: Whether stocks keep grinding higher or finally run out of steam, there's always money to be made in the market. You just need the right strategy. Shah originally shared these trade management tips a couple years back, but they stand the test of time…

Back in 1982, I was a clerk for a big market maker on the floor of the Chicago Board Options Exchange (CBOE). A year later, I was sitting on the exchange and running a hedge fund.

My first day of trading was a disaster. But it's where I learned how to get rich.

You see, there was a "fast market" in FedEx Corp. (NYSE: FDX), which means the pit was crowded with traders yelling and screaming, buying and selling options based on an unexpectedly positive earnings report that had just come out. I rushed into the crowd and amassed a position.

What happened next cost me $30,000, but the all-important lesson I learned more than made up for that in the end.

It can make you a ton of money, too…

So, I walked back to my booth on the floor, right next to the Salomon Brothers booth, where Norman – the investment bank's head trader and without a doubt the smartest guy on the floor – asked what I'd done. I told him I got "long" a bunch of calls.

Norman quickly shot back: "What's your exit?"

Of course, I hadn't given that a second's thought. I was too excited about getting into the position.

Just a few minutes later, a news story said the earlier earnings report was wrong – and that FedEx had actually lost money that quarter.

That was it: $30,000 gone in a Chicago minute.

It took me a week to make that money back, but that's how I "earned" the first of five trading rules that are the key to getting rich.

These aren't made-up rules. I earned and learned them from experiences just like this one.

And today I'm going to share these five rules with you…

Five Steps to Riches

One reason most investors fail to become wealthy is that they don't understand the single most important premise of investing.

It's not the buying – the getting into trades or investments – that makes you money.

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It's selling to cut losses, selling to ring the cash register, or selling because you're buying a jet with your winnings, that matters.

Maximizing your wealth is about managing your positions – it's about trade management after you've put on your positions.

Here are the five rules I always follow that will guide you…

Shah Gilani

About the Author

Browse Shah's articles | View Shah's research services

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of 10X Trader, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade.

Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps.

Shah is a frequent guest on CNBC, Forbes, and Marketwatch, and you can catch him every week on Fox Business's "Varney & Co."

He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

… Read full bio