Full Time Trader?

Calendar December 24, 2007 | Posted by Jorge

Over on Option Addict dot net, there’s a forum post regarding trading for a living. What would the goal be for a full time trader to survive without working a 9 to 5?

I’m currently a PhD student. Potentially, my job, upon graduation, would bring in about 100k conservatively. Assuming my family and I can survive comfortably on 100k a year, what would I need to bring in as a full time trader to survive? Well the folks on OA state you need to bring in about twice your comfortable living income. So what would it take for someone such as myself to quit a job I have yet to find to become a full time trader?

Profits from trading: $200,000

Assuming a conservative 10% rate of return, my initial starting investment would need to be $2,000,000. That would require my entire salary invested over the course of about 20 years in order to attempt to become a full time trader.

What if you can consistently bring in a 20% rate of return? Now we’re talking about 10 years before I can take the thought of full time trading seriously with starting capital of $1,000,000.

How about a 25% rate of return (which I’ve seen in short bursts this year)? Starting capital becomes $800,000.

30% ROR? $600,000+. 40%? $500,000. How about a simply starshattering 50% ROR? Now we’re talking about a $400,000 initial investment.

These are very simple calculations assuming a few things. First, every penny I make goes into an investment account. No emergency fund, no 401K/IRA, no bills!  Second, the money saved wouldn’t compound in any way either via interest or gains on investments, etc.

In short, for the average person, it may take a while before thinking about taking trading up as a full time job.  Sure, some folks such as Timothy Sykes did it and with a relatively small amount of capital as well.  It’s still a difficult process for the average person but it’s something I know I’ve been considering for quite some time.  And who knows.  If I end up trading full time, I could afford to blog 24/7!

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  • Admirable intentions, and at the risk of sounding cliched, I'd say that it's not as hard as you fear, and not as easy as you hope. Realistically speaking, best way to go about trying to become a full time trader would be to start trading seriously right now. Continue your career, and build up your investments. Conservatively speaking, if everything goes right, you should be able to quit your job in 3-5 years.
  • Actually you're right. I ran those numbers with very simple calculations. Using excel, I ran a slightly more complicated, and more realistic scenario, with monthly compounding instead of a simple end of year scenario. Just as you said, if you're serious, you need to improve your discipline now. The money required isn't as great as I initially thought, even with a modest 5-10% ROR per month. I think the worst part of attempting to trade full time isn't necessarily the markets or the amount of capital, but the future wife... hah!
  • I doubt most traders have the amount of money (using a ratio to their income needs) you initially estimated as being required. That amount of money sounded more like investing and living off the investments where the money just sits earning money verses actively buying and selling to make money on the ups and downs of the market. Another thing to consider is taxes. If you are buying and selling on a regular basis (meaning you are not holding the stocks for at least a year) your taxes on gains will be higher then if you held the stocks for at least a year, which would then allow you to use capital gains tax rates.
  • Oh yeah, it was a very simple scenario. It's a starting point, but I agree, it's grossly conservative. I'm actually working on an excel sheet this morning on the subject. It's been a long week with the holidays and some wedding plans that I really couldn't procrastinate on! I'll have a new post up in a bit with some more realistic numbers taking into account the max capital gains tax (35% for short term holdings) plus 100% monthly expenses (i.e. living paycheck to paycheck). The percentage of income needed each month can be adjusted but I'd prefer to leave some portions of the spreadsheet conservative in the event of an emergency or whatnot, although folks should have an emergency fund etc.
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