The other day I found the following in my email inbox:
I have only managed half the Essentials of Futures Trading… so far. But it’s refreshing to get real info for nothing… rather than promises and hype..many thanks…I am doing a really worthwhile job right now.. helping disabled people……but it pays peanuts!.. I’m on HALF what i was 10 years ago. I would rather do a couple of days a week as a volunteer here if I can support myself through trading.. Maybe you are my key..?
I always get a bit nervous when someone starts talking about going from ground zero to trading for a living. That seems to be what this trader has in mind.
Trading for a living has two major requirements. They are the ability to generate consistent profits from the market and sufficient trading capital to generate enough income to more than meet your living expense needs.
It is a very, very small minority of traders who trading for a living using their own capital. Keep in mind that professional traders generally are trading someone else’s money, not their own.
Trading for a living is the dream of a great many folks when they get into the markets. It’s that idea of not having a boss, of being completely independent. I’m not saying it isn’t a great dream. I’m all for independence and pursuing your desires. There needs to be a large does of reality inserted here, though.
First of all, getting to the point where you can rely on your trading to generate consistent income isn’t something which happens overnight. It can take a considerable amount of time, depending on many different factors. In some cases that can literally mean years (if at all), though for someone with the ability to dedicate a lot of focused time to it the process will generally go faster. During this period losses will be taken. It’s basically a lock. That means you need an alternate source of income or a sufficiently large stake to absorb your living needs.
Secondly, even if you are a consistent performer, your chance of trading for a living successfully from a small starting stake are incredibly small. Let’s assume for a second that you need to make $5000/mo from your trading to cover all your living expenses, plus taxes, plus health insurance, and all that stuff your employer normally covers, as well as to have some extra for savings. If you are able to consistently make 10% (a very aggressive long-term rate of return) then you need at least $50,000 in your trading account to make the requisite income. Really you should probably double that to account for dips in performance, taking time off, etc.
On top of all this, trading for a living can be a very lonely thing – depending on how you do it. A lot of dedicated traders complain about that. It’s not for everyone.
I’m not trying to throw a wet blanket on things here – just trying to keep people from pinning their hopes on very low probability developments. Part of being an educator is teaching people what they can expect along the way.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
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