Beginner traders commonly ask, “How much can I make from trading?”
$500 per month? $2,000? $10,000 or more?
Theoretically speaking, the answer is “As much as you can handle”.
Sounds good? Well… not quite.
You see, in practice this question has little significance because a trader’s monthly income is rarely consistent.
Planning Future Performance
For illustrative purposes, let’s assume an average monthly profit of 3%. This equates to a monthly $300 income for every $10,000 capital in the trading account.
For performance benchmarking, 3% is a reasonable estimate.
But in terms of practical results, this estimate will likely deviate from your actual month-to-month performance. Why?
Because there are too many factors that can influence your actual monthly performance.
You see, unlike a regular job where your income is fixed, there is no such guarantee in trading.
Think of yourself a village fisherman who fishes for food. Is it realistic to say that you’ll catch 10 fishes on your own, every day?
Of course not.
On good days you may catch 20 fishes. On bad days you may catch just a few.
In a week, you may catch a total of 70 fish, averaging 10 fishes a day. But in practical terms, there are some days where you may go hungry even though on average, you’re catching 10 fishes a day.
Think about what this means for your trading.
When trading for a living, your profits are uncertain while your daily/monthly expenses are fixed.
You have a mortgage to pay for. You have to keep the water and power running at home. You have to put food on the table. There are expenses you will incur, regardless of whether you make a profit or loss trading that month.
The Real Question
So you see, it’s not really a question of “How much can I make”, but “what’s the minimum I have to make, so I won’t starve?”
Ahh. Now we’re getting somewhere. Now we’re talking about real life application, not theoretical averages.
Naturally, a father of three has a lot more to consider, financially speaking, compared to a 24 year old bachelor. The former will need a larger “profit minimum” than the latter.
In other words, the fewer financial obligations you have, the earlier you can start trading for a living.
Getting To The ‘Quit Your Job’ Level
If I had to make a stab at an estimate, I’d say that to comfortably trade for a living you’ll need an account size at least 30 times your total monthly expenses.
So if your expenses are $3,000 per month, you’ll need an account of minimum $90,000 to sustain that level of income from trading (assuming, of course, that you have the skills and knowledge to trade profitably).
This gives you an approximation of the amount of capital you should be looking to handle in the future.
Of course, I recommend that you start with a smaller account to practice trading, especially if you’re new. But keep this approximation at the back of your head – this is the minimum amount you should have in your account, to be trading for a living.
Or A Better Alternative
If you have less than $50,000 in trading capital (or you’re relatively new to trading), I’d suggest that you don’t look towards full-time trading.
In fact, a much better alternative would be to trade part-time.
Stay in a job to secure a stable income, start an account with a few thousand dollars and grow it over time to make a few hundred dollars per month.
This buys you time to hone your trading skills, deepen your understanding of the market, and build your trading account. You’ll be in a much better position to handle a $50,000 account if you grew it from $10,000, than if you started immediately with $50,000.
So Don’t Quit Your Job Just Yet
I reckon most people will need at least 1-2 years of profitable trading before they should consider trading full-time.
Based on personal experience, I’d venture to guess that even if they had the option, most retail traders would actually NOT WANT to trade full time… because it gets pretty lonely and boring being at the computer all day.
Part time trading enables anyone with a few thousand dollars to start their trading journey. (If you don’t have a few thousand dollars in savings, you have bigger issues than learning how to trade.)
So start small and build up your account. If you can, don’t withdraw your trading profits. Keep re-investing them into your account and let the money roll.
If you have a proper trading approach and don’t screw up too badly, your few hundred dollars of profit will soon enough turn into a few thousand… and continue to grow.