I recently saw the question “What is the secrets of making a living from internet based forex trading?” posted on LinkedIn. In reading through some of the responses left by members of the site (as I am) I couldn’t help but be a bit annoyed at some of what people were saying – mostly from a negative perspective. A lot of it was just pure ignorance shining through.
But, let me provide a very simple answer to the question asked. Really, the answer is the same to trading for a living in any market. It takes sufficient capitalization and consistent application of a proven strategy.
In terms of capitalization, you need enough to make the type of monthly returns you require (living expenses, taxes, etc.) reasonably achievable. Even better, make them easily achievable. The person asking the question on LinkedIn mentioned $2500. Personally, I would be thinking $100,000 for a minimum account to achieve that kind of performance. That’s only a 2.5% per month return, which is not pushing things and allows for portfolio growth in those months where higher returns are achieved, but if you have a method that consistently produces a higher rate of return you can get away with a lower capital base.
I wouldn’t want to be in a position where I had to make 10% per month to meet my bills. That’s a very aggressive annual rate of return by most measures, which means you don’t leave yourself much room to grow your account, which personally would be a parallel objective of mine. After all, if you’re not growing your account you probably won’t keep your trading income up with a rising cost of living.
In short, no you probably will not be successful trying to trade for a living with a starting account of $5000. I know the allure of not having a job is there, but try to be realistic.
As for the consistent application of a proven strategy is concerned, that’s pretty self-explanatory. Of course saying you will do that and actually doing it are two entirely different things. There’s no way I can get into all that here. Refer to my posts on creating your trading plan and developing trading systems for further discussion.