Trading for a Living: How Much do I Need

The attraction of trading is obvious to most. The good life. Loads of money for doing practically nothing but sitting behind a computer and clicking a button. To be honest, that is what got me interested in trading. I have had major issues with authority in the workplace and conforming to a nine to five lifestyle has never been my ultimate aspiration.

The mass marketing machine online lambastes you with copious amounts of ‘get rich quick’ FX algorithms and 200% return in one day courses which all sound too good to be true. Piles of cash stacked on mahogany desks and sharply dressed young men wearing tailored suits insisting that “they can do it and so can you!”

Do you wonder why that is? Let me ask you this:

  1. If there are so many billionaire traders which all have highly profitable systems – why do they sell online courses for peanuts?
  2. If said successful traders are so common, where are their audited results?
  3. If its so easy to make money in the market, why doesn’t everybody do it?
  4. Although there are thousands of these alleged professionals online, how many do you know personally? Seems a bit odd really.
  5. If they’ve made so much money, why do they need to impress you yet ask for such little deposits in return?

Those who know can see through the scams in an instant. The truth is that trading requires solid financial planning, low costs when starting up and ideally no or little debt. Don’t let the flashy Instagram posts fool you. It requires significant capital.

The Cold Hard Facts: It’s Just Math

If you are looking to trade for a living, you need to be realistic about the numbers. Which numbers you say? The 20000% return you will make in a week so you can get that ‘Lambo to the moon’? Unfortunately not. I mean REALITY. In fact, this is what RedPill is all about – dealing with the truth and disregarding the dirt.

Let’s focus on what’s achievable and create a realistic plan before departing with our hard earned cash on a whim. Trading is a business, a business needs cash flow, cash needs to come from somewhere. The likelihood of making any money in your first year or so (or longer for me to be honest) is slim. So consider the following:

What You need to Survive

Before giving the middle digit to your boss. Calculate what your living expenses will be. Are you living in rental accommodation? Is your current cost of living sustainable if you were to trade full time? I would always suggest doing a best case and worst case scenario on this. Put the numbers down on paper and be realistic. Without being realistic you will never be successful in this game. When I decided to go solo, it was imperative to build my survival plan around it. Your first goal in trading is to figure out how to survive:

  • Rent €1000
  • Gas/Bills €200
  • Food €400
  • Car €250

It doesn’t take very long to get to over €1500 to €2000 a month for the average person. So keep this in mind. To live for a year and have enough trading capital these factors will have a massive influence. This is why I always suggest trading part time or ‘swing trading’ when you start out. My rule of thumb has been “I will stop working for someone once my trading gains consistently outperform what I can make whilst employed.”. Being in a sales career for 8+ years this has been hard because the money (the trap) has kept me there. No more however. By swing trading and buying index funds over the past 8 years, I live mortgage free and have sufficient savings and passive income to survive.

My recommendation before trading full time is to do the following;

  1. Consider your costs, are they sustainable?
  2. Are you sure you want to trade? It needs to be enjoyable enough that you can cope alone, in a room, with very little interaction.
  3. Could you move to another country that is less expensive to trade?
  4. Is the tax structure in your country workable?

These are just a few questions you need to consider. If your considering moving you may find this article in forms informative on some good locations with lower rates of tax and less overheads.

My wife and I experimented with this in Bali. It was an immensely beautiful country but the novelty of trading and traveling can soon wear off.

So ask yourself: Do I have enough money to survive for at least one year if this all goes horribly wrong? Am I trading what I can afford to lose?

I would highly suggest evaluating this in depth. You simply will not start off being a highly profitable superstar trader. If you were, then why are you reading this?

How Much do You Need to Trade

So you’ve done the basic math above, your confident that you have sufficient savings to survive for one year. This includes some padding for travel and maintaining relationships (good ones). So what can you expect to make?

Based on the average market return of 9%. You would need about €250,000 euro to live a semi comfortable minimum wage type lifestyle based on the standard market return (as depicted below):

Relative price and total return of the S&P 500 index

However you are not here for mediocre returns, you are here to trade! In my own experience, I anticipate around a 30% return each year by buying and selling growth stocks that have super sales figures and are about to commence a steep uptrend. I also own my own property outright and have a small apartment which nets me €650 a month. Luckily I have no debt as well! So I am comfortable having a €100k account which gives me a comfortable €30 to €40k per annum. I try not to touch the principle and compound this sum by following my rules and staying frugal.

Although this sounds phenomenal in 2018 my return was a meager 13%. This meant that paring back my lifestyle and also making small sacrifices was in order.

It’s all probabilities

Market outcomes can be quite random. The truth is that we never know what it’s going to do and there are no guarantees. Although the financial element is important, remember there are psychological and spiritual elements to consider as well. Can you handle the random nature of the markets?

So at this point I can imagine you are experiencing some emotional setbacks. Do I really need that much to trade? I can do better than the other people who have tried before me! This is garbage it’s far easier than that! etc.

This is a purposeful reality check. I don’t want to create any false expectations on what trading is, how hard it is to master yourself and how its’s the hardest “easy money” you will ever make. When starting out, it is important to prioritize your planning and use stepping stones (jobs, education, owning a home, supportive family) to get from where you are now – someone who is enthusiastic about making money in the market – to where you want to be, a professional trader who operates a trading business.

The below summary is my take on what you need to trade for a living:

  1. No debt or overheads
  2. Around €15k saved for living expenses alone, added to this a factor of safety for emergencies (€5k). €20k for living expenses alone
  3. €25k which is the minimum required to day trade online if day trading
  4. €100K+ if position or swing trading as a minimum. (Assuming you can get 20% return as minimum per year).

Total: €150k plus to start a solo career in trading. This assumes a high proficiency off the bat. Although not impossible I would strongly suggest going into the world of trading incrementally. The more you experience and learn about the art of trading – the more likely you will know if it suits your personality.

Still Interested?

If this still piques your interest. Feel free to read my article on becoming your own casino. There are thousands of ways to trade but there is only one way to make money in trading. That is to stack statistical probability in your favor and execute your trading plan time and time again until those probabilities play out. It is literally that simple. That doesn’t mean it’s easy.

Trading and making vast sums of money is possible. I know this because at the age of 30 I was mortgage free and owned my own apartment paid for in cash. I was frugal, had my eyes on the prize and kept learning from my trading mistakes.

If I knew what I do now back then, I can only imagine the amount of wealth I would have amassed. It has however taken time alongside lots of losing.

What I Suggest

My own incremental shift from working full time to trading has taken a number of years. I can however honestly say, it has been well worth the shift. Both financially and mentally. My own process which I would like to share is as follows:

  1. Start young and save aggressively. Live a frugal lifestyle and stop worrying about iPhones, nice cars and image. If you want to trade you need money, to have money you need to save it. It really is that simple.
  2. Do not leave your job or career until you are certain you can trade and make money consistently. This can take a while so don’t be in a rush. I focused on high paying sales roles at an early age with the overall goal of being able to trade.
  3. Make sure to plan and have some goals in mind. Before I quit my job totally I started working part time. It doesn’t have to be an all or nothing scenario. Be easy on yourself here. Have fun with the process and don’t focus on the money.
  4. Pay off any debts.
  5. Be realistic: There is no point in pulling numbers from the air. Have a budget and plan around the lifestyle you are looking to create. Focus on the freedom and art of trading opposed to the money. Focus on the process and the money will come.
  6. I hope you found this helpful. Please let me know if you have any questions as we are always happy to help. If you want to know more about index investing or stocks then get in touch!

 

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