Let's be clear about this right from the start: leaving your job to live off your own trading is a very bad idea. We repeat, it really is not a good idea. Once again: leaving everything behind to become a full-time trader is dangerous and risky!
Now that we have issued our warnings, let’s understand the logic behind these statements and be realistic about life. Yes, life, the real one!
What does living off trading mean?
Before embarking on the adventure that is personal trading and trying to live off it, one must ask oneself the following questions (and answer them clearly, preferably): What does becoming a self-employed trader mean? What does living off trading mean? What does it involve for you and your loved ones? Basically, how will you pay rent and cover expenses? How much money do you need to live every month? And on goes the list of considerations.
Reality is, professional traders who work in banks, management companies and hedge funds are paid. This is key. They have a salary that does not depend on performance. They have regular income. They have enough to cover personal costs on a daily basis, rent, credit, food, etc. Trading performance only impacts potential year-end bonuses.
Meanwhile, self-employed traders who have left their jobs and started their own business must be able to provide for themselves every day, every month. They are their own employer and have no "salary". They either have to enjoy a large safety capital to draw from or pay in money from trading profits or trading accounts each month.
Consult with your calculator
Like any business (because it is!) making financial projections and estimates is your wisest option. The first step is to find out how much money you need to live on every month.
Whether this amount comes from your savings or future trading gains, we all "burn cash" permanently, even for food!
Example: David wants to quit his job and live off being a full-time trader. All his monthly expenses (rent, food, leisure, various subscriptions...) add up to £3,000. Therefore, he needs to pay in at least £3,000 each month.
There are two possibilities:
- He has enough savings and must then calculate how many months he can survive with this money.
- He wants to pay himself with his trading gains. In this case, he must determine the level of performance or return he needs to achieve, according to his seed money. If he needs £3,000 a month (£36,000 € annually) and can reach 10% of annual performance, then his initial capital must be at least £36K / 10% = £360,000. In other words, he needs a capital of £360,000 to pay himself £3000 per month, this hoping to achieve a performance of 10%.
Of course, the assumption of an annual performance of 10% may seem low but you need to be conservative about such things.
Be successful in the long run
Indeed, it is not only a question of getting good results over a few months. If you decide to leave your job, you will have to think long term, i.e. several years. Performance is necessary every month, every year. You need to cash blank months, months with losses. No need for discouragement, just perseverance.
To give yourself the best possible odds, it is better to have several years’ worth of trading history. You can reduce uncertainty, even if past performances are not necessarily repeated in the future.
Banking on security
In order to reduce risks, it is best to test the concept and simulate performances, expenses, living costs, and so on.
It is also essential to have a financial security buffer. On top of your trading capital, having substantial savings will help you survive in difficult times.
In your performance projections, being conservative and cautious is paramount. Continuous positive performance is almost impossible.
Conclusion
You will have understood that wanting to become an independent trader as one’s main job requires experience and careful consideration.
One must avoid fantasizing or dreaming at all costs: living off trading is very difficult, and most people do not succeed nor will they ever. Professional traders have wages, whether they win or lose on the markets.
Psychological aspects must not be overlooked either. Having one’s life depend on performance and results and the obligation to generate continuous gains causes stress and can affect results.
Our advice is to keep your job and build "passive" income otherwise (with real estate for example). Once you have a source of income other than work, devote yourself to trading!
