Hi I have a friend who wanted me to ask this advice from the board. My friend works for a company in NYC earning a salary of 75K per year. He has traded on the side for over 8 years now with a slow mo place like Waterhouse and Datek(presently) from the start of that time. He has never used Direct Access platforms but he understands them as I have shown him the "ropes" so to speak on the ins and outs of such a platform. He stared with 15k 8 years ago and he now has the trading account at 250k after tax, also he has never added to the account by the way its all trading profits after tax for 8 years running. My friend has been swingtrading positions for a few days at a time using TA and market momentum/psychology. Once in a while he will knock a trade out in 1 day but according to him thats when he gets a large gain in one day. My friend is 32 years old and married with no kids. He has a house with a small mortgage etc but with what he makes currently he has no trouble meeting his bills, he has always been prudent with his spending that way. My friend's goal since he began trading on the side was to go out on his own full time. He has been doing this as I said for 8 years now and has great experience with TA, market psychology etc etc. He has only been using Waterhouse and Datek as I have said because he swingtrades but he understand the Direct Access Platform because I have shown him so much of it over the years. His goal is to go out on his own and at leat begin with matching his salary that he is giving up. He waited until his account was larger so he could begin to employ a dual strategy of swingtrading and daytrading via a direct access account. Folks he has the stuff, this I know firsthand, he has the right mental game for it and the right experience.(I tell him this all the time) His wife is 100% behind him in his decision. I tell him all the time he is wasting his talent staying at his job and that he should do what his dream has been for the last 8 years and trade full time. I tell him you proved you can make the money because your entire stake is from your trading over the last 8 years. The question is this...and the reason after all that background that I am asking it is because he didn't want to put up a first post and have it start out with this kind of inquiry so I said I would ask on his behalf. Anyhow the question is as follows: my friend wants to know if 250K is enough for him to start trading with fulltime? Taking into account his monthly bills are somewhere around 4200 per month net in total. He does have another 25k saved up as side money by the way not to be used for trading but for bills if he does go full time. However my friend wishes me to ask of your folks here on ET what your opinions are on having 250K and whether or not thats enough to employ both swing trading strategies and day trading strategies while working at home full time not at a prop shop by the way. He does not want to use others leverage only what he has so prop at home or remote is not for sale here folks. His goal like I said first year is to get comfortable with trading at home full time and to match his salary of 75 with gross trading profits. Folks he will be reading the replies please give him some honest answers he can handle it. Thanks all.
Your friend has been compounding his account at the rate of 42% per annum. Why change when you can produce these numbers? In another 8 years at this rate he will have $4,200,000 At half this rate, he will have $1,150,000 in another 8 years
In short, yes, he should be able to generate a good income from a 250K account with a good swing strategy. If that has been working for him, there is no reason for him to assume that daytrading is going to add to his gains, and no reason for him to rush into it. Personally, I would continue to focus only on his swing trading, as I do, but if for some reason he has a burning desire to daytrade, he should proceed slowly and with caution. IMO, a solid approach to swing trading will give him a longer life, more reliable income, and more restful nights.
I think $250K is more than enough to make $75K per year, which I believe is around $300/day. If he decides to trade futures, I think $75K can be made with a $50K account (or even much less if you're good) But yes, I think $250K is sufficient capital to trade full-time. -Fast
Tell you friend it should be enough IF he manages his risk correctly. Open an IB account. 4:1 daytrading margin would bring his buying power to $1M intraday. 2:1 overnite would bring it to $500K, which is more than enough I think if he's careful. He does NOT need to go to a prop shop and get 10:1 or whatever leverage they are offering. It's too risky. If he has been swing trading and doing well then he should continue to do that. And set aside a smaller account to practice his daytrading... good luck to him!
Yes agreed that would be the internal rate of return. However my friend is aware that with a larger account that the law of diminshing returns will come in to play as well and he will not have 4.2 million in another 8 years. He also understands that he is giving up a job to do this and will be eating his seed corn. However he believes as do I that by the 2nd year he will offset this amount by being able to pay more attention to opportunities that slip by because he is working full time. Lastly he is very much interested in persuing the full time dream of trading after 8 years. We all know that trading full time is a dream of many. You cant beat the freedom of not having a job but he is fully aware of the long hours it takes to trade sucessfully full time. He feels it will be a labor of love..the question in his mind is the capital.
Ask your friend what amount does he need in his account and in reserve in order to not feel like there is any need to ask such a question. Then instruct him to continue as is until he has reached his own answer. It's not so much what you know or what you've got - it's how you feel about it.
There is no answer to the question. If he continues with the same method, why leave his job. If he trades full time why does he think he will make money on this non-method trades?
He should go prop with $10k - $25K plus leverage for daytrading and then continue to swing trade the $225K in a separate SIPC account.
Well, not necessarily. I work about 7 hours a day, and some days not at all, depending on market conditions and trade setups. Your friend should not assume that he needs to take on heavy hours and a lot of of stress through daytrading. Again...if he has been successfully swing trading, the odds are great that he will do better with the ability to watch real time signals, and he can continue to scale up his positions. A good swing strategy that trades 500-700 shares of multiple positions in a 250K account should be able to move to 2000-3000 shares in a million dollar account with no problem. It is all a matter of trading smart, not trading hard, and managing risk through diversification. But by now, he should know all that.