Imagine you're a decently paid professional ($120k) working 45 hours and you have a side business ($30k) which takes another 10 hours. The job might go away over the next business cycle and your living expenses are $30k. Assume you've got $35k cash and the rest of your net worth is tied up in illiquid investments (3-5 years). Ten years ago you traded $10k into $150k+ before there was significant automation in futures markets - so you know you can execute in the heat of battle and handle drawdowns. You have now built a strategy which makes around $7 gross per contract traded, retail fees cut that in half. Strategy is manual execution supported by some models. Products are mostly correlated equity index futures - exploiting high correlation microstructure relationships and the occasional bigger trade at times of dislocation/panic. Crude, gold, G8 FX and some bonds included for economic events. Trades outrights, no spreads, no carrying overnight. Two problems: (1) fee structure; (2) capitalization. With $35k I'd trade a 3 lot across the 8-10 products monitored, roughly 15 times per day which would work out around $130/day net of retail fees. There is no question about doing this alongside a full time job as would need to be at the screens 12-14 hours per day to capture the signals and sometimes overnight when there is major geopolitical news. Missing just a few of the bigger movers would hurt performance. So with $35k deposited you'd make $2,600/month on average. That's before any fixed costs e.g. order entry software, data feed, etc. To give up a decent income to do this I think you should be expecting to make 2x the prior income to offset the risks involved. This needs to take into account any split with a firm or investor. So let's say $20k/month is the minimum to make this worth running. Figures above imply a capital of $270k if it was 100% my money and higher to account for any investor split. Obviously a high percentage of profits is being lost to high clearing and exchange fees, ideal would be to trade through a firm with a membership. I'm prepared to put up some first loss/skin in the game money for sure, but not going to eat the opportunity cost of going full time to make $3k/month in the blind hope that somebody backs me down the line. My qualifications aren't in STEM from a target university, the strategy is manual and probably can't be fully automated, and I'm not a talented programmer - so Jane St, Jump, Gelber, etc wouldn't be a good fit. Also the deal needs to be fully remote with at most the first few months on site. (tax if it gets up to scale) Setting up my own entity and raising investment directly seems out of the question unless I want to try and raise several million - legal fees, regulatory/compliance paperwork, getting an exchange membership etc is too much hassle. Call it $50k and weeks of work if I somehow got by on a shoestring budget. Finding investors without prior performance would be hard. Not sure if this strategy is going to bring in more than $6-800k/year when capacity limits are hit - I have some estimates but not the mathematics and data science background to validate whether this could scale before making a serious commitment to a larger raise. If I could take $250k/year from this, post split, for the next 5 years (the strategy is fairly stable over time) then it would be worth going full time. Below this it doesn't seem to make financial sense. Do I: 1) look for a trading company to back this; or 2) try to set up as a CTA and take 1-2 high net worth backers; or 3) borrow $200k and try to grow organically from there; or 4) don't trade - edge isn't good enough For borrowing, saving another $15k before going full time, would be on beans and rice for the first year and would have to call it a day at a $50k drawdown. Starting with 30 lots to make $1,500/day or so that doesn't leave a lot of room but is just manageable based on historical data. I don't like #2 because I don't want to take investments from non-traders and have that affect my personal relationships. Finding backing outside my circle would be almost impossible for a new CTA. I'm wanting to know whether there are trading firms who would back this, assuming the performance was consistent and in line with expectations. #3 I'm not keen on mostly because I find full time trading tedious and only want to do it if it makes financial sense - taking on even more leverage makes it less attractive, opportunity cost is a huge factor given that the 'skills' used in trading are non-transferable, nothing of longer term value is being created, sedentary for long hours, repetitive, etc. I know what to expect when running it and would run it with my own money for a few hundred trades to prove the concept but only if there were an offer at the end of this due to opportunity cost. Surely there must be some people here with relevant experience? Several years ago it would have been possible to grow organically at 30-40%+ per month but I'm not seeing those opportunities any more. Thanks.
Income = $150,000/year Expenses = $30,000/year Spare Cash = $120,000/year In 2 years you'll have $240,000 in your account.
I suggest you investigate automating what you currently have. Send me a PM if you need help with with that. No charge for an initial assessment.
1. I think your "risk discount" is too low. To replace 120-150k in full time salary with benefits, health insurance, 401(k) etc. I'd want to be making something like 500k+ from trading, not 250k. Less if you're already pretty well-off counting those illiquid 3-5 year investments, and are certain you won't have major spending needs in the future; more if you don't have much else in the way of savings and expect living costs to rise going forward. Also depends on the field you're in, it might be difficult to re-enter at a comparable salary if you're out of work for a few years. 2. It's a red flag that you don't seem excited about trading the strategy - describing it as socially useless, boring, etc. It's going to be very difficult emotionally to keep grinding out those 12-14 hour days at something you don't enjoy much, find tedious and "useless" in the back of your mind. At best your life will suck day-to-day, at worst it'll totally destroy your ability to execute the strategy correctly or survive the inevitable drawdown. 3. A $7 per contract edge is tiny. Again, at worst there's no edge actually there at all; at best, you have very little margin for error and even the slightest lapse in performance (due to the factors in #2 or other reasons), or a small change in market conditions, will rapidly send your account into a tailspin. 4. Your expectations seem to be for consistent annuity-like daily returns, which is likely not realistic. So, based on the information presented I would not trade the strategy, at least not now. Instead, keep working and saving. IF you get laid off in the next downturn, then take 3-6 months to test-drive the strategy in live markets. You'll have much more capital to deploy if it seems to work, plus a handy unemployment check and/or severance to offset living costs, the opportunity cost will be much lower, and if it doesn't work out then the gap in your CV will be much easier to explain.
Keep it simple and have patience. If you're making at least % a month consistently which you are, keep doing it. You will double your account capital every year if you don't need to make any withdrawals.
In addition to #2, you could also consider family and friends. We set up back-office support for traders like you.
The general advice I've been given to start trading is: You need a LARGE account. 35-50k is fine if you're going half time at work and doing this half time. But you need to accomplish a number of goals: 1. You need to create enough return to live on and grow AUM (after taxes) 2. You will suffer serious drawdowns - 70-90% of your tradeable equity should probably remain in cash. A modest leveraged return of 2% per month wouldn't be enough to get off beans and rice with at 35-50k but it would be enough to grow that into 150k which would be a nice lump sum to step into the market for real with in a few years. Additionally you should have around a year or more of expenses stashed away in a safe FDIC insured place (perhaps making income through short term CDs or something). You are going it your own so the old "6 months of expenses is good enough" goes out the window. I've honestly never met a good trader from this cohort. These generally are quant/analyst types which also tend to be awful traders. I have a STEM degree from a non-target university and as I've posted before in my career as a trader I don't use anything that someone couldn't pick up from a udemy course for $50. You should considering automating at least some of your strategy to free you to look for more trades. NEVER borrow to trade. This is possible with a track record. You'll have a hard time pulling in investment from big names in the high net worth category. Most of these people are interested in wealth preservation rather than incredible growth. Additionally, many traders in Market Wizards regret taking on assets from other people, and many of their hedge funds are now closed to the public. Growing AUM too fast will be ruinous. Remember that when you're up everyone is happy, and when you're down you are going to be stuck convincing these people to not pull their money and go somewhere safer/more experienced. There's nothing luxurious about managing other people's money - especially during a period of extended drawdown. If you do take money - think friends and family. People who won't form a pitchfork mob when you sink 30% of AUM into a trade that could ruin you. Finally, I would not seek a trading company to sell the strategy to. If it is as profitable as you claim you should grow a small account organically to the size you need to go part time, and then full time eventually.
Yeah, I think these are your biggest problems. It's not scalable to a point where big guys can allocate enough money to care. It's not automated so can't be run on it's own. I agree with this. Work on other strategies and if you get laid off, join prop and trade their capital. But if you are young and without family/responsibilities, then it may be your only chance and you have to go for it. Still, use prop capital and squeeze as much out of your strat as their risk limits will let you. Do not use your own/family money until you made it.
I think a real edge is gonna be where you are taking profits when (a subset of) market participants are taking losses. You said 3 lots so $21 dollars profit? This seems awfully low for this kind of notional contract value. A good edge should be where you get exposure, the market moves adversely to the move you anticipate and then reliably behaves as anticipated, or immediately moves as anticipated. This seems like it is just scalping noise. The job sounds much better.