Asses what you would get in a job or business and if you can achieve same through trading, you can live by trading for sure.
If you don’t want to do a job or a business for living but want to be a make a living trading, you should asses what you get in a job or business and if you can achieve same through trading, you can live by trading for sure.
Let us start with the basics first.
The first thing you will need as a trader is capital. How much capital you need will depend on how much you want to make each month.
Let us start with a basic monthly expense or a monthly salary.
Let us use 30k per month as monthly salary and assume you make 18 to 24% per year.
We assume when you are starting 18% is a good estimate but at times it becomes tough to maintain even 18% return for an elongated period of time.
If you expect more than 18% returns, you need to set your market expectations right first.
With 18% return, you will need 15L in your trading account.
Other than capital
Once you know what is the capital required for you to make a living trading, consider these 5 factors as well.
1. Bad Days
You can have bad days in a job when your boss is in a bad mood and you were on the firing line. Same thing can happen to traders when the market is in a bad mood and you as a trader is in the firing line.
In a job you will have bad mood and may even discuss about your boss rudeness with colleagues but in trading, you will lose your hard earned money.
On top of that if you just happen to have too many bad trading days, you can have issues covering your month’s basic expenses.
In job, you are expected to have some a hike in salary in the future. You have to factor that into your trading profits where your capital increases by an amount such that you can have higher pay as a trader.
What if you have a bad month, you will need some money in your surplus account to compensate for that month’s basic expenses. You cannot withdraw from your capital because that can have a ripple impact on your future earnings.
4. Hidden Expenses
You have taken into account the direct expenses like the brokerage you may need to pay or charges for internet connection for trading but what about those hidden expenses that happen once in a while?
The income tax you need to pay on trading gains or your PC needs a repair.
As an individual trader, if you are not trading on any given day, you will not make any money but in a job, you can have a leave and still get paid for it
You cannot trade for 250 days in a year and will need time off.
If you assume a couple of weeks off a year, you will have to add non trading period into your profits.
I don’t think you should consider trading as a source of living unless you have a cushion of at least 2 to 3 times your expected monthly expenses.
If your basic expenses are 30k, you can make a living trading with at least 2 to 3 times of 30k. So a 60k to 90k per month is what you should target as minimum income from trading to provide you with cushion for bad months, hikes and vacations.