I'm about to start a good job; pay is pretty good, but I don't know if I want to work for the rest of my life. I enjoy trading much more, on one I can keep the stable job and live a good life or risk everything including never being able to re-enter the career again to trade full-time. So for those that have done it here are a few questions. How much did you save up before you decided to trade full time? Was it worth it? Do you always fear you might have a series of major losses and become homeless?
It does not worth the try for lots of guys. Nothing's more risky than to get all in. To keep your job would be an hedge. And a good one according to you. Sure, to be an independent is a dream. However you can always lose it all. No matter your past performance. The states won't bail you out. It's up to you. Does your expected returns are enough? How much would you need as backup? Will it be better if you quit your job? What are the outcomes/payoff? For each of these two scenarios? How to make it asymmetric ? Limited downside ? Unlimited Upside ?
$250k back in 2006. While it's possible to do it with less, working a job would almost certainly be a better bet. Think about it this way. With marketable skills, finding a job that pays $150k is not that hard. Making $150k off a $100k account is harder and not guaranteed. In order for trading to outperform the benefits of a stable job you should be shooting for $300k which is going to require some capital for margin, bad weeks, living expenses and general mental health. Or you could "trade for fun" or "love the challenge".
Take the Job save enough money to make it for 2 years or more and around $50,000 to fund the account. Most traders blow out their account multiple times, before they find out what they are doing wrong, by then most are looking for any kind of job. Remember 90% to 95% of traders don't make it, just think about that for a minute. Work by day and study the market by night. I'm not a fan of back testing, but I do like reply a lot.
It depends on your cost of living. If you can live with basic one, you dont need to save much. Just save some money for blowing some accounts before you become a successful one.
Let's say you need $50K before tax to support your lifestyle (I'm assuming your in the US; this is roughly average household income). A good trader can expect to make 10% a year, but it won't be consistent (please don't believe anyone who quotes you a higher number. You may be very good, or lucky, and make more; but you shouldn't expect to). I'm assuming you run your trading so that your annual standard deviation of returns is around 20%. Method 1) Conservative (this is what I do, so not with the same numbers) You should have other non trading income to support at least 80% of your lifestyle, so $40K. If you're not working that means investment income. High yielding stocks and bonds can give you around 4%. This implies $1 million in investments. You need to make the other $10K from trading at 10% = $100K trading capital. Bear in mind that if you're living off your trading income you can't compound it. You should also assume you'll have five consecutive years without gains from trading. You need 5 x $10K = $50K to cover those. This should be in cash or very low risk investments. Total is $1.15 million Method 2) Aggressive You have no other income You need to make $50K from trading at 10% = $500K trading capital MINIMUM. Personally if I was relying on this for all my income I'd not gun for 10%, I'd probably want more capital. Otherwise there is too much pressure if you don't make those numbers. Let's make it $750K. You should also assume you'll have five consecutive years without gains from trading. You need 5 x $50K = $250K to cover those. This should be in cash or very low risk investments. Total is $1 million GAT
It's not so much a specific dollar amount because every body has a different lifestyle (cost of living). Thus, don't make the mistake in comparing specific numbers because the other person has a completely different cost of living than you. Instead, measure it by your current income level. For example, if you're making 60k per year from your job...you need to consider that you may need a few years to get it right in your trading. That's a few years x 60k = your minimum amount that's needed to start. Then you need to throw in costs of private health/medical insurance and emergency money especially if you have a family. Lets pretend you don't have the above or it will take too long for you to save. Instead of quitting your job...you keep your job and trade suitable markets on your none work hours. Yeah, it'll impact your social life but you'll still have your job is trading doesn't work or it gives you more time to get it right without the financial pressure and relationship pressure if you have a family or you have people dependent upon your income (e.g. alimony payments). Then if you think you got trading right (consistent profits on a simulator)...you can test full time real money trading on your vacations, sick days off (you're not actually sick) and holidays you're off from work but the markets are open for your trading instrument. Heck, you can even take a "leave of absence" if your job offers such or maybe even make changes in your work hours so that its more compatible with trading. Simply, use your job as your plan B or security blanket if trading doesn't work for you. Therefore, do not quit your job until you're a profitable trader with profits similar to the income from your job. The other issue is your starting trading capital. Keep this separate from your living income just in case you lose your starting capital due to trade losses. Starting capital varies also from person to person depending upon the markets you're trading. Just put a little money into that allows you to open an account with your broker and trade the minimum in the beginning. Actually, you'll be on a simulator (recommended) until you can consistently be profitable on a simulator prior to trading via the minimum with real money. Once again, keep the job until you're a profitable trader with real money during none work hours. Also, everybody has a different cost of living based upon their current lifestyle needs. Thus, someone with a spouse that has health/medical benefits for the family has a higher cost of living than someone that's single and again different than still living at home with the parents for whatever reasons and again different from someone with health problems and again different from someone that has debts. In addition, keeping your job gives you a psychological advantage in trading in comparison to someone that has quit their job to trade full time without any consistent real money proof (profits that equaled their job). You want to keep that psychological advantage because trading is very stressful in the beginning...it will exposes your weaknesses. Last thing to remember, most traders lose and you need to have a backup plan (your job) if that happens to you. A very good chance such will happen and you better be prepared if it does happen.
Why would you need someone else's opinion when to quit your job? Don't let others dictate your life. Some people do fine with 30k/year. Others can't survive unless they have 100k. So it depends how much you need from forex,.So it's really up to you..
You need at least 12 months of expenses saved up. That said, you should be able to pay your monthly expenses and grow your account with a 1R profit. So, let's say you risk 1% of your account on a single trade and your account is $100,000. 1R would be $1000 and that should pay your monthly expenses. That's why I don't believe in trading for a living without some other sources of income or otherwise already having a $300,000+ account. All the successful trades I know have additional sources of income. Some have full-time jobs, some teach and coach aspiring traders (there's nothing wrong with teaching if you're profitable!), some have income generating websites/blogs and some work for brokerage firms doing market analysis or running live trading rooms. In this game of money, you cannot escape from the need of diversification unless you're already very, very rich. Hell, even the rich value diversification, see Berkshire Hathaway.
After five-seven years losing in futures for long term and day trading, when I finally turned the corner, made up all the losses in 1992. I was earning $45-65k for the government nights and had approx. 25 rental houses mortgaged, so there was always fears of not able to rent out quickly and was always thinking up new small biz to start for weekends. Oh, was not married at the time. For next seven years, I was earning at least 500-200% a year, but each year percentages were going down, but amount was increasing. I figured when I hit 3 million in end of 1999, it be make or break, so I quit the government job. And my losses started, I was nervous all the time, second guessed myself. So I got a job as a courier, I flew around USA with diamonds making deliveries, but it gave me time to trade whenever I wanted and trading went back to what it had been before. Did the courier job couple years and decided to take a year off and kept trading the same. But I always found for me to trade full time, every couple years, working for someone else, I did better trading. Last eight years, my bottom line has done very well, but I have had other jobs consulting without having to leave home. I am 100% sure I would have done much better not going into futures and staying with long term stocks and learning options better. The seven years of losing in futures took all the gains and then some out of profits of stocks to lose in futures. People do not realize what is given up in day trading especially, costs, lost time, worry, it really mounts. Day trading getting harder and harder, everyone who been in it awhile has automation going and going for smaller and smaller profits. I think more can be had in very long term commodities and stocks/options. I think options is just starting to become more noticeable by many and will be traded much more. Instruments rotate through the years and people jump on what gives most bang for the buck. Make sure you have something going on the side to take off some of the stress, part time job or start a business, then add trading to it.