I’m not sure where to place this question but I was wondering…
I’ve been trading for over a year now and become profitable. I’m trying to decide now if/when I should withdraw money from my trading account and put it in a savings account and how much?
I would love incite from people that live on their trading income how they manage taking out income for expenses?
Early in my trading escapades, I took 5k and through bad money management got it up to about 19k in a couple of months before losing most of it (down to 3k) in a matter of days. Things were spinning in my head, you should of taken the 5k out as soon as it hit 10k but then I’d argue I’d never made the last 9k if I had done that. The main lesson I learned from that was that my money management was horrendous and killing my system/trading career.
The lesson I still haven’t learned is if, when and/or how much (percentage wise) should you withdraw from your account.
I’d love any feedback or comments on the topic and appreciate any help given.
I’m not living off my trading yet, but when I am I plan to compound the account over a calender year, then reset to the original balance and bank the profit. Im not exactly sure what I will reset to, but somewhere around 100-200k I’m thinkin
the starting balance of your trading account is $10,000;
you realize a 10% return on your balance per month (a realistic goal);
you want to transfer $5,000 every month to your savings account;
despite withdrawing regularly, you want your trading account to grow.
The simplest and most effective way of compounding / withdrawing would be to first grow your trading account to a balance which will result in your 10% monthly return to be slightly more than what you want to regularly transfer to your savings account.
This will ensure regular, albeit slow, growth of your trading account, to make up for inflation or the odd month in which you might not achieve your projected AMR.
To make it illustrative, here is a sample calculation, using the above assumed figures:
To be able to withdraw 5k per month and yet grow your trading account by another 1k monthly, your balance needs to be 60k, if you gain 10% monthly by trading; so before you withdraw anything, you first grow your starting balance of 10k to 60k, compounding everything:
Balance on Day 1 … 10,000
Balance after one year … 31,380
Balance after one year and seven months … 61,160
So, after a bit more than a year-and-a-half of growing your account without withdrawing anything, you’ll be able to transfer five grand to your savings account monthly while your trading account still grows by another thousand bucks per month.
After some more time, you’d either be able to increase your monthly withdrawal or to grow your trading account faster, to make some real money.
Grab a calculator (or better, set up a spreadsheet) and play around with some figures; you might be surprised what a few years of compounding can do for your net worth.
Cheers,
O.
P.S.: All above calculations do not consider tax you might have to pay on your trading profits; figures need to be adjusted if applicable.
It’s no wonder newbies read these posts, get excited and blow all their money thinking forex trading is easy.
The amount of money you withdraw is equivalent to whatever expenses you have in life; mortgage, food etc the rest should be spread across trading accounts that are registered and contain insurance if they go bust. In the UK, these are FSA regulated which means upto £50k is covered. Treat forex like a business, you should know what costs you have.
Oliver1968 - To make 10% CONSISTENTLY every month is a remarkable achievement, most hedge funds don’t even make that.
It’s not all that remarkable for a retail trader working with small position sizes.
Several members of this forum make 10% a month and more, consistently.
The main reason that institutional traders make less is that it’s way harder to get positions of a 100m filled than it is to get a fill for a 100k.
Apart from that, the 10% AMR was just an assumption.
If jdrhyne makes 5% a month, all he has to do is adjust the figures.
Now NOT to rain on Oliver1968’s parade (as he usually does to me)!!! LOL!!!
Only joking (well not really but you and I know what I mean)!!! LOL!!!
Yes: YOUR (Oliver1968) ‘take’ is INDEED very interesting and worth noting.
I had this same question some time ago (when I was ‘banging on’ about wealth building vs. simply trading ‘until the cows come home’). The one (other) answer that made sense to me, which oddly enough INDEED came from Clint, went something along the lines of withdrawing all or a certain percentage (I forget which now but I suspect it was a certain percentage) of your profits ever QUARTER and banking it and forgetting about it (yeh right: THAT part is the difficult part i.e. ‘forgetting about it’).
I also know that SimonTemplar has an interesting ‘take’ on this subject. I remember reading one of his posts where he noted that he RISKS 2% of his MONEY not his TRADING ACCOUNT. In other words (and as I understood it): he will risk 2% per trade based on the SUM of his savings (profits made and withdrawn and in the bank) and the balance of his trading account. That’s a VERY interesting ‘take’ too (although I don’t remember him being specific about when he withdraws profit or how much profit he withdraws).
One thing important to note: you need to check to see how much your funds are insured for with your broker by way of their applicable or relevant investors compensation fund. It varies from regulatory authority to regulatory authority and country to country in some cases. Although brokers don’t go broke too often (at least not those that actually DO segregate client funds and are not ‘‘bucketshops’’): imagine how you’re going to feel having built a trading account up to $1 000 000, the broker goes broke or closes down or gets in trouble (does the name ‘MF Global’ mean anything to you???), and all you’re covered or insured for is $20 000!!! LOL!!! Alright: ENDLESS TORTURE AND FINALLY MURDER come to mind but that’s not going to get you your money back (although it may make you feel better)!!! LOL!!!
I completely agree with this, especially if you are not insured at all as with some brokers or bucket shops. Its better to only have a small portion in the account to actually trade and cover your margin. Its much easier to wire in more money from your savings account when you go cant cover your trades anymore, then to be completely wiped out in an MF global situation. You will be charged more wire fees but i would rather have 75% in a safe institution with 25% exposed and enough to cover my trades. But i can leverage that 25% up to the equivalent total money which would be equivalent to a 1%-2% total risk. This is actually how i manage my money as well.
I agree, very easy to understand. That’s a great balance after one year and 7 months. I would like to be good enough one day so that I could live off my trading profits.
