How much capital do you need to trade full time?

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Jpwone

JPWone

This is great advice and strikes me as very sound and practical. Sadly, in the world of trading, folks tend to enter this zone of amazing 'detachment' from reality i.e. from real business reasoning and planning. Too many unreaslistic expectations. Basically, if you don't have a sound business plan (written or not) to undergird your trading plan (yes I know most don't bother) - you can expect trouble.

I would expect the business plan to inform the trading plan which would determine my cash outlay. The style of trading I wish to employ together with the markets and instruments I seek to use will also be key factors.

regards
S

 

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Zambuck

I believe that returns from markets in next few months will be very difficult....

Zambuck

Please pay attention to Sharky's question at the start of this post. You were not asked (here anyway) for your views on ' returns from markets in next few months' but trading capital projections. When have returns from markets ever been 'easy'?

 

[donaldduke]

A day trader who has few losing weeks needs a lot less than a position trader who might not make
money for months.

As a rule of thumb i would say atleast 4 times what you need to live on each year.

For me that would be 100K as i need about 25K a year to live on.

 

[omojesu]

If you cannot trade no amount of money will ever be enough for you to trade. Originally posted by Feterredchinos who I agree so much with. Your outward expense is largely dependent on oyur income also.
Shalom
Omojesu

 

[fudgestain]

How much capital do you need to trade full time?

Of course £10,000 or less is fine. Its not your capital amount; its if you know thoroughly what you are doing. Most don't.

Know your market better than the back of your hand.

 

[Mornington Crescent]

Trading for a living is not about how much Income or Capital.
It's about survival !!

You not only need to know your markets and its big players but you need to know yourself.
Inside and out.

You probably need to know more about yourself than you need to know about the markets.

And kill the idea of big returns. Think in terms of about 10/15% only .

So you will need more than you thought.
£200,000 or more.

 

[BBB]

And kill the idea of big returns. Think in terms of about 10/15% only .

Do you mean 10/15% per minute, hour or day?

You are either winning or losing.

If you know how to make money your'e not going to settle for a pittance are you? Not after the work you've put in to get there. I can get a pittance for a lot less grief, but a lot more hours with a regular job. No thanks.

You're either into S&M as well, or you havent cracked it yet!

 

[Beach Runner]

BBB wrote:You're either into S&M as well, or you havent cracked it yet!

S&M? Oh, not something else to learn!

 

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S&M

S&M? Oh, not something else to learn!

S= Sales
M= Marketing?

 

[fastnet]

This question is not meant to be deliberately antagonistic but. . . .

10-15% per year. Why would this not be an excellent return? When I have asked this in the past very well respected senior members of this board have quickly come back asking what time frame I'm talking about and to stop being so pessimistic etc etc.

If 5-10% per month is possible that's great. However common sense tells me that it's probably wise to be much more conservative and to shoot for 15-20% in the first years.

First - where else can you get a consistent return of 15-20% on your investments? In recent years property, precious metals, wine etc etc - BUT the future return of these assets are unpredictable and inconsistent. You are also a passive investor. You take on greater risk.

Second if you read thru Market Wizards or the sequel there are very few traders beating 30% per year. On the contrary a CONSISTENT 30% + was given as an example of excellence. These guys are the worlds best.

It is consistency of returns, level of risk taken and max draw down that are important much more than the actual figure you end up with at the end of the year compared with the starting balance.

Also, if you were managing returns above 20-30% on a significant account (ie 20-30% was say the 25K we've agreed you could live on as a base) then why wouldn't you either start your own fund or gear up with a prop house? IF you were consistently returning more than 20-30%, with a decent sharpe ratio, and could prove it, then private investors and City institutions would throw money at you to either trade for them or manage their money.

Either way the personal rewards would far outweigh any return you could make with your own funds with lower risk to yourself. (BTW I am assuming your not starting with a pot worth £1M+ - we're talking average trading account).

Am I making any sense??

I am not saying you can't trade with and live on an account worth £30K or £50K just that the probability of your avoiding major drawdown is slim. You might not want to make any life-changing decisions starting with an account of this size. Of course you MIGHT have an excellent year and double your money. You MIGHT lose it all. To make 50%+ you would be forced to take risks that would open the door to either of the above scenarios.

Of course in the first instance you would be hailed as a trading god and probably reply to me informing me how mis-guided I am. In the second case you would give up, go back to the day job and never read this thread in the first place.

 

[FetteredChinos]

im presuming you mean un-leveraged returns??

with leveraging, 30% and above per month is not unfeasible.

 

[fastnet]

I am talking about unleveraged returns. I take your point but leverage equates to risk.

Take the converse of the statement you have just made. It's feasible with leveraging to lose 30% and above per month.

Also feasibility does not really come into it. It's very feasible to make 300% return at the racetrack on a Saturday afternoon and many punters do. However they run a risk that would mean that, in the long run, they would lose.

Maybe the premise of the whole thread should change to: how much capital do you need to trade full time without taking risks that could significantly reduce your account over the course of days/weeks? If you lose 30% of your account you'd have to then return 50% to just get back to your starting amount.

Even with leverage most of the traders featuring in the Market Wizards books never risked more than 1% of their whole account on any single trade.

 

[FetteredChinos]

ok, for feasible. read, "realistic".

also, trading returns are dependant on capital.

as a trading pot increases, then traders trend to become more risk averse..

ie with a pot of say 10k, a trader may risk 3-5% per trade if they are aggressive.

the same trader, assuming he has built up to say 100k would then only risk 1-2% per trade.

its all relative...

 

[fastnet]

Okay - I agree that would seem sensible.

If returns on an initial account size of 30%+ are possible on a consistent and risk controlled manner (more trades the batter!!) then wouldn't these people prefer to manage money for others.

Benefits: limited downside risk for themselves, a much greater account to trade with meaning that the actual return is greater an therefore the % commission much larger. You would probably also charge an annual fee which really would be risk free.

If you gave up your job and started trading with £10K you would either have to be the worlds best trader (on risk return i/o return basis) or extremely lucky to survive until your pot was big enough to trade with decent risk management and still make a consistent risk-controlled living.

Pls note that I am being opinionated and taking a stance so as to try and keep the post going rather than believing I am necessarily correct -

 

[frugi]

Hi Fastnet,

I think the FSA rules governing the treatment of other people's money in funds are very strict, especially in regard to leverage, meaning the sort of returns available to a private trader are simply not available to the typical fund manager.

 

[fastnet]

Agreed Frugi - forget OPM for a minute although you should still be quite an asset to a bank/prop house or equivalent trading their large account for a % comm and limited downside. If for example you had to put up £50K of your own funds and they top the account up to £500K. The most you can lose personally is your £50K. However you are making 20-30% on the total pot and taking 30% of the profit -

You'd get to keep all the 30% on yr £50K (£15K) but under this deal you'd make 30% in comm from the 30% increase is gross £45K - the £15 you would have made anyway leaves you with £30K.

You might have desk fees on top but let's face it - trading from home isn't exactly devoid of overheads and you would have the added benefit of some human interaction. The figures above are only for illustration - in reality the deal could be better or worse. Point is that IF you are trading successfully at 20-30% pa level then you should be gearing up for maximum gain - don't you think.

Of course I am assuming a perfect capitalist scenario where your one goal in life is to max returns on your capital thru trading - this may or may not be the case.

As far as the FSA are concerned I think you are correct IF you are actively marketing your fund to the public. If you market to other financial professionals (fund managers maybe) then these rules don't apply and if you could prove a steady 20-30% over a decent period with limited drawdown and controlled risk then i'm sure they'd be biting your hand off.

 

[Dave1971]

Fastnet

Call me unrealistic but, I am currently trading forex, no more than two or three trades per day, often only one, and returning upwards of 75pips per week. Not exciting measured by the claims of some on these boards but it'll do for me.

I am currently only trading small through an SB (the profit quoted is after spreads) but with a 20pip stop at £3 per pip on a £5K account the risk is a little over 1% per trade with a return of 4.5% per week.

I haven't even tried to work out what that would compound at but flat rate assuming 6 weeks per year off it's 207%.

I don't compound but am gradually building my stake up by whatever I feel comfortable at, having started at £1 a few months ago. No doubt psychology would become restrictive if I ever tried to get to hundreds of £'s per pip but if built gradually I see no reason why I could not continue this comfortably at £20 -£30 per pip, which by most standards is a good income.

Time will tell if I can continue consistently, but i am doing OK so far.

Any thoughts anyone?

Dave

 

[Creech]

I regularly hear figures of £30k - £200k needed to make a living from trading with returns of 10 - 30% which seems quite excessive.

Surely, people should define "make a living" first as this depends on each individual's circumstances. A single person may only need an income of £15k or less depending if they SB or if they go direct (therefore taxed ). Therefore making 15-25 points p/day with minimum stake therefore little capital injected (i.e. as Dave1971 does above or 1 contract if direct with futures) seems realistic IMO. Whereas if you have a family, mortgage, etc to look after then of course you need more to start with.

However, if your talking about shares then i suppose thats a whole a different story.

 

[fastnet]

Hi Dave - I can see I'm losing ground here. . . . you sound to be doing as well as anyone can expect to and - I imagine - much better than most. It would be important to consider the period over which you have been able to make this sort of return, the consistency of the return and the max drawdown or run of losses etc.

Put it this way - by your own account you're currently making 150 quid a week on a £5K account. If you had 50K to trade with could you make £1500/week. I could certainly live on a tax free income of £6K a month - could you? Would it be this simple? What are the chances a string of losses which would decimate yr account to a level that would not allow a return to be made with the same risk for you to live on.

I'm not trying to oversomplicate this - I would have to work through this very carefully before giving up the day job - not that you are - in our hypothetical world you understand.

Fastnet

 

[Dave1971]

Hi Dave - I can see I'm losing ground here. . . . you sound to be doing as well as anyone can expect to and - I imagine - much better than most. It would be important to consider the period over which you have been able to make this sort of return, the consistency of the return and the max drawdown or run of losses etc.

Put it this way - by your own account you're currently making 150 quid a week on a £5K account. If you had 50K to trade with could you make £1500/week. I could certainly live on a tax free income of £6K a month - could you? Would it be this simple? What are the chances a string of losses which would decimate yr account to a level that would not allow a return to be made with the same risk for you to live on.

I'm not trying to oversomplicate this - I would have to work through this very carefully before giving up the day job - not that you are - in our hypothetical world you understand.

Fastnet

no, I am very cautious. Wife, mortgage, 2 young kids and 2 new cars. It would be a long time even on a £50K account before I considered giving up the day job, because my current strat allows me to trade from work.

I am also under no illusions about the longevity (or possible lack of it ) of my strategy which is why I have not ramped up my stake like a giddy newbie at the first few consistent weeks, I've been at this for nearly 5 years and had bursts of success before only to come unstuck like many report on here. I am trying for the long haul and if it works great if not I'll try something else, but strats are for a different thread.