There can't be many traders who haven't at least considered the idea of telling the boss what they think of him, throwing it all in and going off to trade the stock market for a living. It's a big risk financially, and that uncertainty is what stops most from jumping ship. Is it really possible to trade for a living?
The Dream
You know how it is, you're sitting in a traffic jam at some unearthly hour of a particularly wet and miserable morning, on the way to the same office you have sat in for too long to remember, and you're thinking - there must be a better way ? life shouldn't have to be like this.
Your mind starts to wander and you find yourself thinking back to that stock you bought only a week ago, and how it skyrocketed giving you enough profit to takes the kids to Disneyland in the summer, and you begin to consider if you couldn't make a fulltime living at this trading game. The advantages are certainly tempting; no more pointless meetings with the manager, hours to suit, holidays whenever you feel like it, and with your home-office - no more traffic jams.
Heck, come to that you could even make home anywhere you want it to be! By the time the traffic starts moving again. you're busily calculating how much cash you could make if all your trades went like that last one - you're almost ready to write your notice letter there and then!
The Bad News
Time for a reality check. Certainly all of the above benefits are there to be enjoyed, but it's a huge step from full time employee to full time trader. Are you really ready to give up that monthly pay-check just yet? Can you really cope not knowing how much money you're going to make month to month? Are you prepared for the months when you actually lose money instead of make it? There are many things to consider before taking the leap of faith.
Considerations
Before you even think about trading for a living you have to know how much money you need to live on, that is, how much cash do you need to generate every month in order to survive. As a financially minded person you already have good home accounts, or are at the very least vaguely aware of where the money goes. So take the annual figure (monthly is no good, you need to account for annual recurring items like insurance premiums, car servicing, and vacations), add 50% and divide by 12. Why add 50%? Because there will always be unexpected expenses, and as traders we are always prepared to expect the unexpected.
Now you know how much money you need each month, you can look at your savings and work out how much buffer money you have, that is, how long you could survive without earning anything at all. You can't expect to be an instantly profitable trader, and even the best and most experienced have periods of drawdown, so you need to be ready for the worst. If you can't live for at least six months from your savings then you are probably under capitalised and are not ready to give up that pay-check just yet.
An important but often overlooked aspect of under capitalisation is the effect it will have on your trading; if you are trading because you need the money, then you are trading scared and you're almost certainly going to lose. You cannot distance yourself from the money-aspect of the trade if you are relying on the money.
Living expenses are only one part of the financial equation. Next you must consider how much trading capital you need. This is the money actually facilitate trading, in other words your account balance for trading margin, and the money you will be spending on data feeds, software, and internet access. You must account for this separately, you cannot start eating into your daily living expenses money just because you took a bad trade and need some more margin.
The amount of trading capital you require will depend very much on your trading style. To day trade the US Stock Markets for example, you must have at least $25,000 in your account, so budget for $30,000 to allow for positions moving against you (if you fall below the $25k minimum even briefly, your account can be frozen for up to three months). If you are holding positions overnight you may manage with a lower balance but bear in mind your buying power and consequently returns will be reduced.
If all this is starting to sound expensive, well it is. There's no two ways about it, you simply cannot survive long term as a trader if you are under funded.
This article will be concluded in part two.
About The Author
Geoff Turnbull is a full time day trader, and a contributor to http://www.stock-trading-world.com
executive chauffeured services Bradford .. Madison to Airport carAfter some forty years of banking and investments, I retired... Read More
One of the big advertising kicks today from mutual funds... Read More
If you are fed up with early redemption charges and... Read More
First let's see what protectionism is. According to Mr. Webster... Read More
Just 30 years ago the stock market was a shadow... Read More
I go to the Money Show every year to visit... Read More
People are always asking me when should I sell my... Read More
When we go to the circus we see a trapeze... Read More
It has often been said that there is only two... Read More
Day trading is all about making buy and sell decisions.... Read More
Congress recently passed another new law that is supposed to... Read More
As one of my regular readers you know I have... Read More
Have you seen all those big full page ads for... Read More
How often have you come across an advertisement or e-mail... Read More
It depends on your level of understanding of the market... Read More
To become a successful trader you must have some kind... Read More
I mean it when I say that. While plastic silverware... Read More
Ever jumped out of an airplane? It's OK if you... Read More
We learnt the following the hard way! If any of... Read More
Success in small cap & micro cap stock trading like... Read More
How is it possible that trash Companies are posting less... Read More
I constantly hear the talking heads on CNBC-TV, the radio... Read More
Refuse is a serious issue in any society, about as... Read More
Wall Street's watchword has always been diversification, but what does... Read More
The Law of Chaos is the theory of random unpredictable... Read More
O'Hare Chicago prom limo ..You have a lock on your house. You have a... Read More
There are many important things you need to know to... Read More
I am sure that if you have a brokerage account... Read More
I was devastated!I just couldn't believe it. I was 10... Read More
Exchange Traded Funds (ETFs) are growing. Investors are choosing low... Read More
Spread trading is a technique that can be used to... Read More
If you are serious about making and keeping money by... Read More
I am taking the time to help others learn the... Read More
Over the past few months, several investment professionals have brought... Read More
IT'S REMINISCENT OF THE OLD children's tale about an old... Read More
Investing in long-term financial vehicles give you the most gains... Read More
On Friday or Saturday evening my wife gets a movie... Read More
Mutual funds by definition are a mixed bag of stocks,... Read More
Just about now everyone is confused as to which way... Read More
Whenever I see mutual fund comparisons in the trade publications... Read More
For years investors have been taught to look into the... Read More
Congress recently passed another new law that is supposed to... Read More
I'll bet with almost anyone that has stocks or mutual... Read More
Wall Street has been preaching the doctrine of Buy and... Read More
Fundamental analysis.Fundamentals analysis says the best way to predict the... Read More
From the book 'The Stockopoly Plan' by the author Charles... Read More
This is the continuing story of our two imaginary traders,... Read More
The Shadow knows. There used to be a radio program... Read More
In a previously written article, we expanded the use of... Read More
If you have a pension plan at work you will... Read More
Stocks & Mutual Fund |