Many individuals who hold down a full-time job and trade the markets in their spare time, harbour the desire to trade on full-time basis. It is a very enticing proposition. Over and above your trading record and the reliability of your trading approach, I think it is important to consider the significant sacrifices involved in making the transition:
- Security of full-time employment: Perhaps even more important than the absolute level of income is the fact that an income stream from an employer is usually stable. This regular paycheck stream can be matched up against routine expenses like food, rent, etc and in most cases, will leave you with a little spare change for your long-term savings account. A full-time trader either needs to have an asset that generates enough cash to make these routine payments – bear in mind that a £100,000 asset will be lucky to generate to 5% pa (£5000) after tax - or they are in a forced position of having to try to generate the cash from the their trading accounts (welcome to my world).
- Income growth: Most people’s pay-packets will grow by an amount that beats inflation, and will often be supplemented with end of year bonuses.
- Realistic expectations and your bank roll: The very best hedge funds (eg: Quantum, SAC, Citadel) consistently make or have made around 20-30% pa. They have the very best minds working for them, will often throw money at technology, and usually have decades of experience. If you set your aims in this context (ie at a more modest level), it becomes obvious that a substantial bank roll to required to make a decent living from your trading activities. A reasonable minimum level for a rational investor would probably be around £100,000 (plus the asset required to generate a regular income stream). This is what I think is required to stand a reasonable chance of success. It may also explain help to explain why so many traders fail at the retail level; they just don’t have the resources to take a measured approach.
- Acknowledgement and interaction with peers: We are social animals and unless you are operating from a trading arcade, trading can be a very isolated activity. This is not natural and can be get quite depressing over time. In the workplace you can bounce ideas of other people and you get feedback on your efforts. In most cases, your presence is appreciated. In trading, however, your sense of self-worth has to come from within.
- Other perks of the pay-check: These include things like health cover, insurances, and pension contributions from your employer and paid holidays.
I hope these points underscore the idea that making the decision to become a full-time trader is not a decision to be taken lightly.
As a trader, I believe my objectives are noble, but I’ll confess that I glossed over these sacrifices when I made the decision to start trading on a full-time basis. That was my first bad trade.