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Last week I received an email from a potential client. It said that he was interested in trading on forex and that he would like to open a real account with us.
He wanted to meet in person so that he could get to know me better and really trust the company. We enjoy meeting with our clients, and so we set up a meeting.
Two days later, we were drinking coffee in our office. Just like I would ask any other beginning trader, I asked him: “Why do you want to trade on financial markets?”
This is a model case, but my colleagues and I see this very often. When I ask beginning traders, why they want to get into trading, it often makes them uncomfortable, as if they didn’t know what they are supposed to answer.
In their minds, they are probably thinking: “Why is he asking that? Isn’t it obvious?! I want to make as much money as possible!”.
But the answer we get the most is that they don’t like their current job anymore, that they don’t want to be slaves to the system, that they want financial freedom, and therefore they want to become full-time traders.
Who wouldn’t want it, right? Potentially unlimited profit, flexible working hours, working from your pool lounge chair and all the similar clichés you could hear about full-time trading… Well, I hate to break it to you, but there’s a 99.9% chance that this isn’t what trading will be like for you. We deem a beginning trader should not even think about trading full time. It is undoubtedly one of the many reasons most beginners don’t succeed on the markets.
Just imagine you decide to start trading full time. You no longer enjoy your average-pay job and you want to take matters into your own hands.
So let’s imagine, as an example, that you’ve saved up some money and now you boldly bring some part of it, let’s say $10,000, into trading.
If income from trading is to replace the income from your regular job, you would have to valorize your capital 15% every month. Say you are successful the first month and you withdraw $1,500 from your trading account. That is an amount that may, even after taxes, cover your expenses just as well as your former regular-job income.
The remaining $10,000 remains on your account to be valorized the next month. You might manage to reach the goal valorization and you can again use the money made to pay your expenses.
But imagine then comes a month when you’re not doing so well on the markets. And be sure such month will come sooner or later. In the better case you don’t lose money, but your valorization is about 0%.
What about your living costs? Someone has to pay them…
So you withdraw $1,500 from your account, thinking you’ll get the amount back the next month. But to make $1,500 from a $8,500 capital, the valorization no longer has to be 15%, but 17.5%. Also, you’ll want to make what you didn’t manage to make the previous month. That brings the goal valorization for the month to over 35%.
To reach this goal, you’ll have to risk more. If you risk more, you have a good possibility of not getting any result or even losing your money. If you only manage to make a few percent, or if you lose money that month, you’ll have to withdraw money from the account.
After all, the bills won’ t pay themselves, and you’ve got to eat something. How long can you last? Not more than a few months. I’m sorry to tell you this, but this way your account is on its way to zero.
But there are some people who manage to trade full time. But how do they do it?
It’s necessary to trade money that you don’t need and make money you don’t need either.
You can’t be dependent on your potential profit from trading given all the risks it entails, at least in the beginning. Trading should be more of a hobby for you in the beginning, and only after a couple of years of consistent results can you start thinking about leaving your “regular” job. Under no circumstances should you be without a steady income.
It is ideal not to give up your current income. You may think to give it up only if you have enough money aside of your trading account that you could use to pay for your expenses and cover your financial obligations and such decision should be taken wisely.
That is the only way you’ll be able to avoid the monthly pressure that would probably influence your trading results negatively.
At the same time, if you’re making money on the markets, you could consider reinvesting your profits, or a part of them, and save the rest for any unforeseen financial needs.
Using the model situation above, if you reinvest half of your potential profits, you’ll only have to valorize your account 14% the second month and 13% the third month instead of 15% every month when not reinvesting at all. That increases the probability of reaching your set goals and lowers risk.
The idea of full-time trading is great but has its risks. For sure before it can become reality, each trader has a long way to go. It is a path filled with obstacles, traps, small victories and rough falls.
This path is not for everyone and the direction and duration differs for everyone. There’s a prize for those who succeed and manage to get to the end that could secure them the desired life style. But in this business, nothing is free, simple or instant. It’s important that we remember that.
About the Author
Team Purple Trading
Purple Trading is a true and 100% fair ECN / STP forex broker providing direct access to the real market. High speed orders execution, no trade-offs, no limits for any type of trading, the most advanced trading technologies. Explore more about Purple Trading at www.purple-trading.com .
For more information on the risks of trading, click here .
P.M. Purple Trading is a trade name owned and operated by L.F. Investment Limited., 11, Louki Akrita, CY-4044 Limassol, Cyprus, a licensed Cyprus Investment Firm regulated by the CySEC lic. no. 271/15.
