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!).
Go for it!