So the past few days I have been conversing about full-time trading on another post that happen to ask “How much do you need to start full-time”. A lot of people had a lot of different ideas and the conversation eventually turned into something much bigger than just capital available. I wan’t to open a question that is a bit more specific for those who are experienced to respond too.
What must you truly need before going full-time?
Here’s an example to base the answer off of:
Jack wants to be a full-time trader. He’s learned a lot about forex over the course of a year. He knows risk management and has a strategy that follows good ethics. He, for the most part, knows what he is doing.
He wants to be able to have an apartment that cost 1,200 and with utilities it would be 1,600. He has a car that he pays 500/mth for.
With this lifestyle in mind, in your oppinion, what would jack truly need (capital available, skills needed, mindset needed, really anything) to make sure he succeeds as a full-time trader with the least amount of risk?
People are all different. How old is Jack? Is he single or in a relationship? Kids? Does he currrently work? Does he have other alternative skills as a back up if things go wrong? Does he have any capital? What kind of trading does he do?
The reason i am trying to put some flesh on our Jack as an example is because there is no single right answer to the question. Its like asking what kind of car he should buy without knowing his budget or his circumstances or even why he wants a car.
If you really want to evolve a serious and in depth analysis of this topic (which would be exceedingly valuable) then i believe you need to be specific and concrete and broaden out from there. Otherwise you will just end up with a collection of bland one-line posts contributing nothing. For example on your last thread on this subject I note that the range of opinions concerning the amount of capital needed now ranges from $600,000 to $100 as well as one comment that it does not even matter! What does that tell you!
But let’s see then. I will shut up and let’s see how this develops.
You did ask why i queried about his alternative skills if things go wrong. Personally, i think whenever one plans a major change in life one should always consider what are one’s options if things don’t go according to plan.
Since Jack is a young man and single he probably has little to worry about if he fails but if he had been, say, 40, married and with 2 kids, then his situation would be far more critical if he goes bust after the first year and has no money left. If he has a trade skill then he may be able to find work ok but with no alternative skills or experience? Place yourself in that situation and ask, should i have taken the risk of going full-time. I think this is a very critical issue for anyone to resolve before going ahead. It is basically a life risk: reward type analysis.
But i am clearly thinking about this question from an angle that is not what you are looking for. So I’ll back off and enjoy how it unfolds.
As it was mentioned before, additional skills are extremely important, as they give the potential trader the confidence he would be able to earn for living or to create new deposit. Most of the traders fail, so it is necessary to have a Plan B. It is better to mvoe to full time trading only when the trader succeeds in part-time trading, that means that trading as a job already brings enough money, otherwise the psychological pressure would be extremely high and could even influence the quality of trading decision.
Wow, that a lot, you know it’s not possible to guarantee any income in forex, correct ? So what it’s all about here ? I assume he works in something like very big state here really and all of this just do not add up to replace that with guaranteed forex income.
Interesting. So it’s a question that is just so vague to get a real answer out of, since there are so many variables? Some people could be successful or at-least meet all the requirements for being successful based off their more easier life situations, where as others simply need to have more strict requirements in order to make sure their lives aren’t completely at stake.
You’ve let pull back and look at the big picture yet again friend.
One day I will be able to look at things at all angles like yourself.
Yes, that is inevitable. Any decision to go full-time trading and to live off one’s trading earnings is a really major decision that will affect every single aspect of one’s life. So the consideration and planning impinges on every facet of one’s life - At least it should do!
But let’s jump forward and look at some figures then, if that helps:
Jack has to prepare a budget planner for the next year ahead analysing on a monthly basis all his expenses in broad categories, for example:
housing costs (rent/loan, utilities, insurances, possible repairs/improvements)
living costs (food, telecoms/internet, petrol, clothing, entertainment, hobbies, holidays, etc)
We know his housing costs and car loan amount to around 2000 p.m.and I would suggest this should not exceed 50% of his net income. So we are looking at a net income of, say, 5000 p.m.
Jack needs to work out his earnings need and broker account equity:
Depending where in the world he lives he will be paying tax on his income and therefore will need a gross income of nearer 7000 p.m. i.e. approx. 85,000 p.a.
But he will realistically only be trading for around 10 months of the year, so in those 10 months he will need to target around 8,500 p.m. to cover the other two months (e.g. December, summer months. holidays etc)
Each month has around 20 trading days and he may only trade about, say, 15 days. So his Mon-Fri target is around 2500 - 3000 to achieve his monthly target.
But we know that there are losses as well as gains and therefore we need to know Jack’s success rate. If its around 66% then we are crudely looking at winning 12 000 and losing 4000 every month (we all know that it doesn’t work this way in reality, but this gives an idea of the scale of the project!)
Now to earn a net of, on average, around 600 a day means some pretty big position sizes but that can only be calculated once one knows his trading style, instruments and margin requirements according to his broker regulation (e.g. ESMA and whether he is classified as a retail or professional account)
But let’s say 20,000 covers his margins and his mark-to-market fluctuations.
Then Jack needs to focus on his buffer to cover bad months /which, of course, will happen)
He first needs to make a decision how long he is prepared to continue if he fails to make his planned targets. So let’s say he decides that if he has not reached and maintained his targetted 8,500 p.m. after 12 months then he is going to quit and go back to a normal job.
He has calculated that he needs a net 5000 per month to live on so he should have around 60 000 in the bank to call on if he fails to make anything at all.
But this has to be money that he can afford to lose and should still have a balance left over to restart his life - so let’s say around another 20 000.
Bottom line for Jack:
So we could say that Jack needs to earn 8500 gross for 10 mths of the year, needs 20 000 equity in his trading account and a further 80 000 in his bank account to carry him through if his trading fails (i.e. capital of 100 000 in total).
This is just a scenario off the top of my head, but if it helps to catalyse other peoples thinking then good!
One should also remember that if one start trading full-time for a living and sole source of income then in the long term one needs to target a much bigger income than normal to justify the risks in the first place and will also need to include a contribution to capital build-up to safeguard one’s future and retirement (also future family and housing expenses!).
Nope. Another great post. I just did not get involved here as without actually realizing it (and it wasn’t on purpose) I seriously derailed Jack’s other thread and went way off topic. So I did not want upset Jack here!!! LOL!!!
You mentioned something really important actually and something I clean forgot about i.e. the actual number of trading days in a month and year. This definitely needs to also be factored in when these guys do their straight line compounding and fixed monthly percentage gain calculations. Not an issue if part time but a material issue if full time. I (thanks to your post) now remember well what it was like to sit in front of a screen in Decembers (plural) praying for any type of movement because month end bills were looming.
Aside from the above good ‘ol Jack there also needs to factor in the cost of possible emergencies or expenses not planned for (just happened to me now this week).
And Jack needs to be reminded again that he is not going to make a certain fixed percentage every single month. I believe I know what I am doing and have been at this lark for a decade off and on and give or take. Because of the moves since yesterday the chances of me closing out at any reasonable amount of profit on my current trades is pretty slim. So that is already a week gone in the month. And there are only two weeks left in the month. And this from a proven trading system with a track record i.e. not something that was conjured up a few months ago and curve fitted to hell. Again: this coming from a real person and a real situation right now i.e. not some hypothetical blog or musing.
So based on the above and after reading all of the posts on Jack’s other thread: I retract my original calculation and I think that Clint is probably on the right track. That, unfortunately, excludes Jack and myself and probably 99% of the forum members from trading full time. But at least Jack would be able to trade without pressure and have a quality of life and without sleepless nights. And his chances of trading for a living and not wiping out would be pretty good (all the other things like experience and a decent trading system and methodology being equal of course) (but given that Jack has only been around for a year or so and mostly knows what he is doing, as per the OP, well I am not convinced that Jack is quite yet prepared).
All of the above being said: it could very well be that Jack does not have any choice in the matter. Could be that Jack has no family or friends to turn to and is unemployed and has no chance of finding a job but does have some capital. If this be the case well then Jack may as well take a chance as he probably has nothing left to lose. But if this is not the case then Jack should keep his day job and trade part time for five years and then see what he is able to make per month on average (five years in my opinion being long enough for Jack to be able to know if he has discipline and more importantly that his trading system or methodology can withstand those little surprises and curved balls that the various markets will throw at Jack and his trading system or methodology from time to time). The calculation of the amount that Jack then needs to start trading full time is then very easy with a calculator.
I, for one, don’t think you derailed it at all! On the contrary, I think you added great depth and breadth to an important topic!
This is why your contribution here is so valid and to be encouraged!
This is another issue relating to trading full-time that I still wanted to cover at some stage.
When one trades primarily to build capital then timeframes and trade durations are not a big issue and it is only a question of one’s trading preferences and circumstances.
But if one is going to live solely off one’s trading profits, then it is a very different matter and raises some difficult issues. I think it is generally accepted that trading short term, i.e. intraday, can be very erratic and uncertain, especially in periods where there is no clear direction. Therefore longer term trades and higher TFs are possibly a safer bet.
However, long term trades only carry a theoretical profit until it is actually closed and there is always the risk that a position that has carried a good, but open, profit for some weeks is suddenly hit by opposing news and the profit disappears almost instantly - but in the meantime one has had to keep paying the outgoings which this open profit was intended to cover.
So matching banked profits with continual outgoings is a problem that is perhaps only resolved by a comfortable buffer of equity. But even then, recovering from a trade that had been carried for a couple of weeks, even months, that suddenly goes south leaves a huge hole to be replaced in some other way.
Another issue with longer term trades is position size. Stoploss levels generally need to be much more generous than with day trading and that somewhat limits the size of trade - which, in turn, reduces its earning potential.
So one has to find a strategy that is long enough to stand a chance of consistent profit but short enough to allow banking of profits regularly enough to reasonably match outgoings.
Thanx guys for your input that is very valuable for anybody who is about to go full time
I have a question
What is the difference between a full time trader and a new entrepreneur who has taken up a loan or got some heritage money and went and purchased a subway or dunken donut franchise
Well I have read, with keen interest and excitement, comments made on this “Full Time Trading” enquiry. Here is my comment!
Forex trading does not give overnight riches. making money in Forex involves a practical process with a lot of studies, discipline and practical application. It also involves a lot of risk.
In any life endeavour it is better to have an alternative plan. If we cannot control the trend of global events. So, Jack should have an alternative plan before plunging into Forex on a full time scale.
He should also do partime trading for some time. If he is making up to twice his monthly expenses or bills, consistently, them he would be in position to know if he would succeed as a professional Forex Trader.
Otherwise, going pro without
an alternative skill/plan and proven track record of successful Forex Trades month to month… could be a oneway ticket to an uncertain future!
Good question, @zrrsys
I think there is a big difference between trading and running a more “normal” type of business, especially a franchise.
With your own business you are usually selling a product or service to someone who wants to buy that product. It is much easier to estimate beforehand the likely demand for such products within the catchment area (or net-based business) and that level of demand is not likely to change significantly on a daily or even hourly basis as in forex!
It is also far easier to quantify overhead costs and profit margins upfront in a more traditional form of business. Therefore, providing the initial calculations are in the right ballpark then success in the foreseeable future is fairly likely.
This is especially so in the case of an established franchise where there is already great experience of the type of area, cost levels and client potential that should be present in order to succeed. The rest is then mainly down to personal efficiency and customer service.
But even so, the failure rate amongst new start-up businesses is quite high. I don’t really know any statistics about that but I vaguely recall reading locally here somewhere that of the companies set up under local authority/state start-up schemes only one third still existed after 3 years.
In forex trading, you do not have a concrete product to offer or customer service to compete with. You are simply taking risks based on a calculated bias in one direction or another and using risk:reward tactics to try and gain more from the correct decisions and lose less from the wrong ones. There is no reason why this shouldn’t work over time, as with capital building - but the problems start to occur if you have to match the level and frequency of these earnings with your monthly outgoings, and some on top of that, too!
But putting money into a start up is also taking a risk
from the statistics you gave it seems like it is the same for forex traders
70 percent loose money
Somebody said you need 60000 dollars in your account to be able to trade comfortably
and with a 5% succes rate (the norme)
which is probably I guess the same monthly pay of a franchise owner
Except that a franchise owner has the benefit of contributing to the economy by hiring one or two employees
In the spirit of the other posts, there are lots of considerations I had not considered and found this quite helpful. For example, medical bills will be a huge factor in one country but not others. Or the golden years retirement fund. Do I see myself trading into my 60s and beyond? Can I count on the market being available?
The most valuable thought for me was realising that Jack needs the self discipline not just to succeed, but to know when he must have the courage to fire himself from full-time trading. I did this about 10 years ago and have committed to other career goals since while I consider if I can avoid repeating past mistakes of overstretching my capital and getting emotionally stressed.
That said I mustered up a spreadsheet to help answer the question of capital. Hopefully I can upload it but it seems as a new user there are restrictions.
For this scenario, Jack lives in the UK so healthcare insurance isn’t much of a factor. The skills and mindset to me are one in the same. Reading books that are effective in instilling the discipline required to abort any emotions from a trade. These materials should consider behavioural social disfunction as much as what works to help people ‘succeed’, for example personality types and autism I have found useful to get an understanding of.
The last bit is qualitative so for Jack having monthly commitments, spreadsheet I cannot upload (new user) says mid-life Crisis Jack should have £40,000 of Capital with two targets:
30-40 pips weekly profit, and at least two pairs he can consider himself an expert in the fundamentals of
The ability to succeed at the profit target for 3 out of 4 weeks each month, and put at least one week into diversified investments. This requires overall market knowledge that gets updated daily.
UK Jack the Lad might consider the least amount of risk at £2000 capital, with an expectation to eat Ramen Noodles and Rice-a-Roni daily when a target of 20 pips a day cannot be met. And he lives in a relatives basement.
Can your Jack be comfortable watching $£ 50-60 per pip swings with the trading strategy he employs?
Yes indeed it is taking a risk (I am not sure about those statistics). But the reasons for closures amongst traditional businesses are maybe more varied than for forex. I doubt very much that franchise-based failures are anywhere near the 70% level. In the case of other start-ups, in my experience most of them have been due to either a total lack of proper planning and marketing or an over-optimistic assessment of customer potential and pricing.
One fine example was a tourism-based business offering accommodation, meetings facilities and restaurant services. In their business plan they had included several events occuring simultaneously every single weekend - but they had overlooked the fact that whenever they had a wedding reception, for example, they would not have sufficient facilities to also accommodate other events the same weekend. Kind of blew their plans apart before it even got started.
Another factor with those supported start-up companies was that the schemes only really offered an alternative to unemployment benefits and a number of applicants did not really intend to continue beyond the 3 yrs that the support provided anyway- or they already knew at the start that it only worked while the business was subsidised. I.e. there was little intention to continue anyway (and I suspect the state knew this and only provided the scheme to windowdress the unemployment data! )
