FAQ How Much Money Does a Trader Need To Start Trading?

[timsk]

I still did not see a clear answer to the question in this topic "How much money do you need to start daytading" And by starting daytrading I mean quitting your job & live off daytrading alone as your sole income.

By this standard, I would think I would need about 300.000 Euro to do it. Making a 10% net annual return would result in 30.000 Euro which is about my net annual income from my current employer, including pension, holiday pay, profit sharing benefits and tax returns.

What do you guys think? Is this a realistic figure? Looking forward to reactions from people who are actually trading for a living themselves.

Hi Willem,
Welcome to T2W.
Please see post #2 the 'Long Answer' - as it specifically answers this very question in considerable detail. In a nutshell, IF your trading results show a return of 10% - and you require Euros 30k p/a to live off - then you're correct in thinking you'll need an account funded to the tune of Euros 300k.

 

[Mr.Emilio]

My point:

Nobody will tell how much you can use in trading except yourself. Be fearless and face your as a trader biggest nightmare - YOU LOSE ALL! So what you will do what will feel, what you will tell your friend and wife! With what amount you will be able to say : Not a big deal! That is your amount you can start trading. It is different for everyone and not always depend from your bank account statements.

Emilio

 

[dccruibay]

the advices are very important but i think trade is not a easy job on the contrary it is really very hard so before you start you must do many preparation in advance such as Preparing long-term work .it is not only physically but mentally
hope everyone can do it well

 

[galeonbaster]

Re: How Much Money Does a Trader Need to Start Trading?

I aim to make 20-30% a year, whilst aiming to keep drawdown below 20%. I could of course shoot for a much higher profit "target", but I'm doubtful of my ability to handle the increased drawdown that this would entail.

This is right point! trader can handle any profit, drawdown is the limit for trader!

 

[upacs]

I still did not see a clear answer to the question in this topic "How much money do you need to start daytading" And by starting daytrading I mean quitting your job & live off daytrading alone as your sole income.

By this standard, I would think I would need about 300.000 Euro to do it. Making a 10% net annual return would result in 30.000 Euro which is about my net annual income from my current employer, including pension, holiday pay, profit sharing benefits and tax returns.

What do you guys think? Is this a realistic figure? Looking forward to reactions from people who are actually trading for a living themselves.

Don't forget to include inflation, that is, roughly 2% of your profit will be eaten away by this factor alone. Then you have to take into account your future expectations. Will you be happy with 30k per year for the rest of your life? with a real job, your income would (hopefully!) increase as your expertise and seniority increases.

Add it all up and things start looking gloomy quickly, unless you have a lot of funds at your disposal, or you somehow manage to achieve greater than 10% return on your equity.

DISCLAIMER: I'm not a trader (yet). The biggest question I have right now is what is an attainable realistic return. If it's 10% per year, then this endevour is not realistic for me, as I don't have the funds available. If, as some seem to suggest, returns of 2% per week are realistic, then things start looking better. In the end, the only way to find out for sure is to actually have a go.

 

[HowardCohodas]

DISCLAIMER: I'm not a trader (yet). The biggest question I have right now is what is an attainable realistic return. If it's 10% per year, then this endevour is not realistic for me, as I don't have the funds available. If, as some seem to suggest, returns of 2% per week are realistic, then things start looking better. In the end, the only way to find out for sure is to actually have a go.

Some strategies can return 8% to 10% per month. These strategies tend to be high probability trades with modest to good returns. However, failure can eat up several months income.

If this is a job, it's like being fired. Traumatic, but not disastrous.

Your system consists of a strategy and you, the trader. A successful strategy can still yield unsuccessful results if the trader is not performing well. You need a method of detecting trader failure and/or strategy failure.

 

[ImproveIT]

My experience is a as follows. Like all forms of gambling trading Forex is tricky and it takes time to understand the market. You find some of the very best systems will work for a few months and then fall foul. The reason is that the market continually changes. If you look at some of the leading pundit sites returns of 5-10 % look realistic. Other system scalp a few points which is ridiculous and unsustainable. See how long you can keep scoring a few points for before you lose your marbles - dont go there !
Some systems will give results of 8 and 10 % but because of the way the market is you need to look at these results over a period of years. It is possible that systems can be tuned to hit the mark for 3 or 4 months.
Do not underestimate your own time, performance and consistency requirements. The percentages are so thin that you cannot afford to miss anything. This also means that you will not be trading where there is doubt in the forecast. If you are new to trading do a significant amount of research on what the professions can return and try not to get lost in the mumble jumble site figures and cool graphics. So if you have all the right characteristics and can rise unscathed from a few big hits – Its also very easy to get trapped into positions even for experienced traders. So in summary if you want a 50K return each year you will need to have a pot in the order of 1/2M. I suspect it will take a few years to be trading these levels for most. Best approach is to start small, do your paper trading, see it as a hobby, stick to a few reliable sources for sentiment and technical analysis.

 

[Willem30m]

Don't forget to include inflation, that is, roughly 2% of your profit will be eaten away by this factor alone. Then you have to take into account your future expectations. Will you be happy with 30k per year for the rest of your life? with a real job, your income would (hopefully!) increase as your expertise and seniority increases.

Add it all up and things start looking gloomy quickly, unless you have a lot of funds at your disposal, or you somehow manage to achieve greater than 10% return on your equity.

DISCLAIMER: I'm not a trader (yet). The biggest question I have right now is what is an attainable realistic return. If it's 10% per year, then this endevour is not realistic for me, as I don't have the funds available. If, as some seem to suggest, returns of 2% per week are realistic, then things start looking better. In the end, the only way to find out for sure is to actually have a go.

You're right, I didn't even think about inflation yet. For the past 3 years it really was my dream to start daytrading, but lately I am really starting to doubt if it will be possible. The amount of money is takes is not something I have available right now, or anywhere near the short team. If I would get my capital up to 300.000, it would probably take me around 20 years of modest living and saving... by that time I will be around 50 and there may not even be a point anymore, because by then early retirement may be coming to the horizon. Why would I want to take large risks by then, closing in on the finish line. And that's even without inflation like you said.

So the only way to make this work is to up the returns, or move somewhere where you can live on less income. However, I doubt anything above 10% is very realistic. I mean, sure you can make 10% profits from time to time, but also consider your losses, commissions, data costs, hardware costs depreciation etc. After adding it all up at the end of the year, and your bottomline is still +10%, I think you're doing very well indeed, considering 90% of all traders lose money.

I mean guys like Bernie Maddoff only gave 10% returns a year and that guy was considered to be a very good trader before he turned out to be a fraud.

So unless you move to very high risk leverage products, which I think are really alot of crap, I don't think anything above 10% is very realistic. But I hope someone can convince me otherwise because I still like the idea of trading for a living better than a daytime job.

 

[timsk]

Hi Willem,
You strike me as being a cautious and conservative person. Someone not prone to excessive risk taking, who weighs up his options carefully and makes informed judgements. You probably abhor gambling and if you ever did gamble, you'd do it for enjoyment and not with any expectation of winning. All of these are, broadly speaking, attributes which will serve you well in life, IMO. The flip side of this coin, is that you're only 30 (or there abouts) and you seem to have concluded that the trading game is not for you in spite of the fact that it's been your dream for the last 3 years. Give up on it if you want, but it would be a shame to walk away from it for the wrong reasons, based (potentially) on false assumptions. Based on your last post, I fear this is what you're doing.

1. You're assuming a 10% return which would require a £300k account to generate an annual income of £30k. There are traders who make this much in a month. Who's to say you won't be one of them? You won't know until you try. Paper trading is free; so it will cost you precisely nothing to find out!
2. Focusing on what you need in terms of starting capital can only be done when you have some trading results to base it on. Develop a trading methodology and trade a small account (i.e. £500 or so) and see what percentage gains you can make consistently. Even if you 'only' do 10% p/a, you've got a great platform to build upon. Speculating about your returns before you have developed a profitable methodology is putting the cart before the horse.
3. In twenty years time you'll be an old man of 50 and thinking about a pipe and slippers - not about day trading the financial markets. Well, I have news for you. I've recently turned 50 and I'm a day trader. Trust me when I say you'll think differently when you get there - or do I mean here! I apologize if this sounds patronizing - it's not meant to be.
4. "So unless you move to very high risk leverage products, which I think are really a lot of crap I don't think anything above 10% is very realistic." Risk is only dangerous if you don't understand it. Once you understand it and are crystal clear about how to manage it, it can be kept to a minimum. Not eradicated completely, obviously, but minimised as much as possible. This applies to everything, including highly leveraged derivative products like futures.

I would argue that to have a meaningful and fulfilling life - you're going to have to take many risks along the way. Some of them will be way bigger than trading the markets, e.g. marriage. Again, I speak from experience! To conclude, I think you need to toughen up and knuckle down, focus on your dream and pursue it. Quitters never win and winners never quit etc. Go for it!

Tim.

 

[upacs]

Willem

You are following a very very similar thought pattern to myself. Based on your post I'd say you are where I was about one year ago. This is what I have concluded/learnt in the year since then

1. You just don't know what returns are possible. You can read lots about it, ask here in the forum, you can speculate, but until you actually develop a strategy and start implementing it, you just won't know what is possible, and no amount of speculation will change that

2. It's true that the "big boys" don't make much more than 10%. Heck, 2% above S&P500 consistently year after year is considered very good, if not amazing, performance from a hedge fund. The key being _consistent_

3. There is something you are not taking into account. Trading millions or billions is an entirely different game to trading a few thousand dollars/pounds/euros. When trading such large sizes, there are many opportunities that simply aren't there

4. I even thought about the moving to a lower cost location, which is still very much on the plate, but I'll consider if I ever decide to leave my job and trade full time. Sunny Spain sounds appealing

I know it's possible to make money consistently in the market. In a firm I used to work (major IB), there was a guy doing algorithmic trading in German bond markets, and was making consistent money. Not earth shattering, but consistent.

You sound just like myself. Analitical, likes to weigh all options, very risk averse, dislikes gambling. All strengths based on everything I've seen/read so far.

By all means, keep researching, but you won't get a straight answer. Your only options will be either to give up, or to go ahead and invest the time to develop a strategy.

As for myself, I've decided to answer this question once and for all. I'm currently starting to develop a business plan (this is a business venture after all) which will require some time investment initially (to develop the methodology/strategy), and assuming all goes well, some money investment to try out the strategy(ies). If it all works, great, I'll consider it as a full time career. If it doesn't, I'll have invested the time in getting the answer(s) I was after, close this chapter, and move on.

It'll probably take me a couple of years to answer my questions, but at least I won't left wondering "what if" for the rest of my life

I hope that helps, and best of luck!

 

[hokid]

Re: How Much Money Does a Trader Need to Start Trading?

I aim to make 20-30% a year, whilst aiming to keep drawdown below 20%. I could of course shoot for a much higher profit "target", but I'm doubtful of my ability to handle the increased drawdown that this would entail.

higher risk, higher return is true in some circumstances.

 

[Willem30m]

Hi Timsk and upacs. Thank you for taking the time to replying, I really appreciate it.

I want you to know I've read your posts and it has inspired me to learn something more about the futures market, which I don't know much about yet. In the past I have traded several markets like stocks, options, forex and leveraged products with stock as the underlying vehicle, but I never tried or read anything about futures. Lately, I only trade stocks on Euronext, using a buy and hold strategy for stocks that pay out the most dividends. Because of a new job earlier this year, I don't have the time to follow the markets closely anymore when they are open. The thing about Stocks though, especically the ones with high dividend, show quite a slow price movement. So that's how I came up with the 10%.

I understand that for futures, there is alot of risk involved, but the returns are also higher. I am just going to read trough this book first and see what's what. I've picked up a copy of Trading Futures for Dummies, which is pretty interesting so far.

One of the first chapters describes that according to pro future traders, you need about 100K to make it in that market. That is alot, but not impossible for me to achieve somewhere in the next couple of years. It also states that in the futures market, 95% of all traders lose money, in which undercapitalization seems to play a big part as well.

Can I ask you Timsk how much capital you use for futures trading and what your returns are in that market? I would just like to hear from people who are actually trading these markets to get an idea.

 

[timsk]

Hi Willem,

. . . Lately, I only trade stocks on Euronext, using a buy and hold strategy for stocks that pay out the most dividends. Because of a new job earlier this year, I don't have the time to follow the markets closely anymore when they are open. The thing about Stocks though, especically the ones with high dividend, show quite a slow price movement. So that's how I came up with the 10%.

As a rule of thumb, companies that pay a decent dividend tend to be large and profitable - 'blue chips'. They tend not to be young companaies growing fast and, consequently, they offer the dividends to attract investors. Their share price tends not to be especially volatile which is attractive to LTBH investors - but not so to traders.

I understand that for futures, there is alot of risk involved, but the returns are also higher.

All this means is that futures are more highly leveraged than equities. Yes, potentially, you can make more - and quicker - but, just as easily - you can lose more - and quicker! However, this potential for exposure to added risk isn't a problem if you know how to manage it. To decide to trade futures in preference to equities because of the potential of greater returns would be a big mistake, IMO.

One of the first chapters describes that according to pro future traders, you need about 100K to make it in that market. That is alot, but not impossible for me to achieve somewhere in the next couple of years. It also states that in the futures market, 95% of all traders lose money, in which undercapitalization seems to play a big part as well.

Publishers of trading books have to be aware of the potential of moral hazard. If they said anyone can open a futures trading account with $5k and compound it into a fortune in nano seconds - they'd soon find themselves in very hot water. Consequently, they over compensate. The flip side of the arguement is this: if you're a poor trader who's about to blow their account trading futures, is it 'better' to blow a $5k account or a $100k one? As for the infamous 95% statistic - it's another example of something people get very animated about for no obvious reason. Obviously it's difficult, otherwise everyone would do it. Coupled with this is a most unusual barrier for entry into the market: you must be 18. That's it! Put the two together and it's easy to see that the failure rate is gonna be high.

Can I ask you Timsk how much capital you use for futures trading and what your returns are in that market? I would just like to hear from people who are actually trading these markets to get an idea.

The point I've been trying to make in previous posts is that the results of any one individual trader are completely irrelevant and meaningless to you. There are no reliable yard sticks. For me (or anyone else) to supply my own trading stat's will be more of a hindrance than a help to you. If I posted good figures you'll be inclined to be encouraged and visa versa. The only stat's that matter are YOUR stat's based on YOUR trading results.

Tim.

 

[safvan]

One can make a lot of money by just not over trading. Opportunities in the market (high probability trades, provided you are not a day trader) only come once or twice a month for a given stock or instrument..

From experience I have seen good technical traders doing average results with over trading and average traders producing enormous returns just by taking high probability setups once a week..

 

[Mr O]

I trade futures and most professional clearers that don't deal with retail won't let you open account less than 50k

 

[chrisbliss]

you don't need so much, but you should have enough so you can effectivly trade using Money management, if you trade micros you dont need more than a few hundred, for minis (Forex) you need atleast 1000, this is if you are going to be trading with about 2% or your acount.
something like that.

If you like to trade Futures then you need a lot more, this have to do with the lotsizes are generally much larger trading futures, a minilot future is much larger than a minilot forex, so the amount of security you will have to put up to trade is also larger

 

[natureboy]

..it also depends on what you want to do with the account (live off of it, only for growth), your experience level, and how much money you have total.

 

[PriceActionDayTrader]

I've always assumed a good 25K US would be sufficient. Also, I'm sure it depends on the market one is trading.. So far most account with 25K, you're able to have access to Margin as well.

 

[NVP]

its horses for courses ...........just make sure you have sufficient funds available to manage your risk multiple required per trade .

N

 

[dante3]

Hi Timsk and upacs. Thank you for taking the time to replying, I really appreciate it.

I want you to know I've read your posts and it has inspired me to learn something more about the futures market, which I don't know much about yet. In the past I have traded several markets like stocks, options, forex and leveraged products with stock as the underlying vehicle, but I never tried or read anything about futures. Lately, I only trade stocks on Euronext, using a buy and hold strategy for stocks that pay out the most dividends. Because of a new job earlier this year, I don't have the time to follow the markets closely anymore when they are open. The thing about Stocks though, especically the ones with high dividend, show quite a slow price movement. So that's how I came up with the 10%.

I understand that for futures, there is alot of risk involved, but the returns are also higher. I am just going to read trough this book first and see what's what. I've picked up a copy of Trading Futures for Dummies, which is pretty interesting so far.

One of the first chapters describes that according to pro future traders, you need about 100K to make it in that market. That is alot, but not impossible for me to achieve somewhere in the next couple of years. It also states that in the futures market, 95% of all traders lose money, in which undercapitalization seems to play a big part as well.

Can I ask you Timsk how much capital you use for futures trading and what your returns are in that market? I would just like to hear from people who are actually trading these markets to get an idea.

the amount depends on what you will buy/sell )))
if you would like to trade with Berkshire Hathaway shares i think you have to start with 20K if there will be leverage available