Want to learn how much capital you need to start trading for a living? This article will cover just that.
Trading For A Living:
Do you want to know which question I get asked the most?
It’s “How much money do you need to trade for a living?”
And you know which answer I usually provide? It depends. Everyone has a different income and a different trading goal.
“Can I start with $5,000? $25,000? More?” It’s the first step that we all have to take before we are able to trade for a living.
In this article, we’ll talk about how much money you’ll need to trade for a living. I’m going to share with you my three-step approach and provide a real-life example from my own personal trading account.
Let’s talk about step one!
What is Your Trading Goal?
Step one is determining how much you want to make each month from trading and setting those goals. Again, everyone’s answers are going to be different here.
To start, take a look at your monthly expenses. Do you want to make enough just to pay off the bills or your mortgage? Do you have any dependents that rely on your income for school or activities? Of course, these expenses will be different for each trader.
What about treating yourself to cool stuff like cars, boats, or vacations? I love to travel, so I make sure to include that in addition to my trading goals each month. What other things do you want to be able to afford that brings you happiness?
Once you have taken all of these factors into account, you can then begin to figure out how much income you will need to generate every month.
Get Organized and Make a Budget!
Do you know what else helps? As boring as it sounds, it helps to make yourself a budget. Now, this does not have to be a complete list of expenses that are calculated down to the dollar, but list your major ones. Things like housing, transportation, food, healthcare, and utilities. The necessities we all need to pay for to live our lives.
Now for the fun part! Make sure to set some aside for entertainment and enjoyment. Like I mentioned earlier, if you love to travel, set aside something in your budget for that. As fun as trading and making money can be, you have to enjoy your life too!
The next category isn’t quite as fun: taxes. They are unavoidable and it helps to factor them into your budget so that you aren’t hit with a huge amount come tax season.
So now that you have yourself a mini-budget, add these all up and you will get a rough estimate of your monthly expenses. For me personally, this number is $15,000. Remember this for later, because I’ll show you exactly how I trade for a living that allows me to make a minimum of $15,000 each month!
What is the ROI of your Trading Strategy?
Now that you know what your trading goal is each month, it’s time to move on to step two in my process: the Return on Investment or ROI of your trading strategy.
Personally, I like to trade using both the PowerX Strategy and the Wheel Strategy. When I use these proven trading strategies, I want to see at least a 30 percent ROI based on my buying power. Here’s what I mean by this.
For myself, I am trading in a margin account. This means that if I put $20,000 in cash into the account, my total buying power would be $40,000. So let’s see how this factors into my ROI goals with this account.
Remember when I said I wanted to make at least a 30 percent ROI on my buying power? Let’s multiply $40,000 by 0.30 to figure this out. If your calculator is the same as mine, this number comes to $12,000. So for an account with buying power of $40,000 I want to make at least $12,000 per year.
To find out the ROI based on the cash I put into the account I simply divide my original investment of $20,000 by my ROI or $12,000. This comes to 0.6 which is my ROI based on cash.
Okay, are you still with me? I know, not everyone loves reading about math. But here’s the good news: that’s all for the calculations!
Let’s Trade for Consistent and Realistic ROI
Now you might be thinking that a 30% ROI sounds kind of low. Some traders want an ROI of at least 50%, and some want at least 100%. Obviously, I love when I can get an ROI of 50-100% too, but overall, I am looking to generate SRC profits. By SRC I mean Systematic, Repeatable, and Consistent profits.
Call me traditional, but I’ll take 30% in SRC profits over an inconsistent 100% ROI from trading meme stocks. Because for me, 30% is the floor for my ROI and that is more than enough for me to support my lifestyle.
Remember, everyone’s goal is different. Your ideal ROI could be 40% or it could be 20% and either one is totally fine! Just make sure to stick to YOUR number. By the way, if you haven’t determined your ROI yet, use your trading strategy in a simulator like a paper trading account. After about 40 trades, you’ll be able to find the ideal ROI for your strategy!
Trading for a Living: Determining Your Initial Account Size
Now it’s time to move on to step three: determining your account size. Are you getting excited yet? This is where things begin to get fun and we’re that much closer to actually trading.
To calculate your initial account size, I will provide you with a formula so you can just plug your numbers into it.
You’ve probably realized now that everything I do is very systematic. First, we determined how much income you will need to make every month. Then second, we calculated how much ROI you can expect from your trading strategy.
Sticking to a process like this is critical to being a successful trader. Furthermore, this will also help you to stay disciplined when you are trading!
So finally, here is a very simple formula that I use to calculate what the size of my trading account should be to start trading for a living. This allows me to use my trading strategy to generate the amount of money I need each month, which is $15,000.
For simplicity, let’s say the desired income each month to cover your living expenses is $10,000. In order to determine the total buying power needed in that account follow this simple formula:
Buying Power (Step 3)= Desired Annual Income (Step 1)/ Expected ROI (Step 2)
So if you want to make $10,000 per month, that is the same as saying $120,000 per year. So this is the number you use for Step 1 in the equation.
For Step 2 in the equation, let’s just use an ROI of 30% which is pretty standard and conservative. It is also very realistic to achieve this ROI with the PowerX Strategy or the Wheel Strategy.
How Much Cash Will You Need to start trading for a living?
So let’s plug these numbers in to calculate our total required Buying Power.
Buying Power = $120,000 / 0.3 = $400,000 in Buying Power
So the cash you’ll need to have to attain a Buying Power of $400,000 is, of course, $200,000.
If that’s more than you expected that is understandable. You can trade for growth to start and build your way up to this level. I just wanted to show you how to calculate the amount of money you need to reach a goal of $10,000 per month.
And hey, when you get to $200,000 in your account, you can really start thinking about quitting your job and trading for a living!
Have Realistic Expectations!
You might still be at the point where you only have $10,000 or $20,000 in your account. That’s a great start but I wouldn’t quit your job just yet!
Let’s keep it real with our expectations. I like to say real money, real trades, realistic expectations.
So let’s continue with keeping it real. This is not an article saying ‘all you need to do is buy my investing software, the PowerX Optimizer, and you will make $100,000 per year’.
While that is certainly possible, this was intended to provide you with a path to starting your trading career. Like I said, everyone always asks me how much they need to start trading for a living. Now you know!
The Numbers In Action
I told you I would show you exactly how I calculate how much I need for my own personal account. Let’s take a look at what I need to meet my goal of $15,000 per month, which is $180,000 per year.
Now let’s assume I am using the PowerX Strategy and the Wheel Strategy, which I do anyway. I know that both of these systems can provide me with the 30% monthly ROI I am looking for. Let’s plug these into my equation:
Step 1: $15,000 = $180,000 per year
Step 2: 30% ROI per year
Buying Power = $180,000 / 0.3 = $600,0000 in Buying Power or $300,000 in Cash
So these are real figures from my personal trading account from earlier this year:
On January 11, 2022, I had $250,000 or $500,000 in buying power
Now today at the end of April my profits are as follows:
Profits: $72,908 / 4 months = $18,227.00 per month
My goal is $15,000 x 4 months = $60,000
Guys, we did it! I managed to make my desired trading goal of $15,000 per month, with a little extra for fun.
My realized profits were $72,908, or about $3,300 over my trading goal each month. It is a little more than 30% ROI, but remember, 30% is the minimum ROI we want. Anything more is a bonus!
Trading For A Living Summary
As you can see, calculating how much money you need to trade for a living is the easy part. The hardest part? Sticking to your trading strategy and keeping those expectations realistic. You shouldn’t expect to turn $5,000 into $1 million because someone on Twitter said they did. It’s just not realistic.
Maybe that’s not what you wanted to hear. You have to keep in mind that I am all about the SRC profits. If you can make a process that is repeatable and consistent, you will never need to aim for 200% gains on a trade.
If you don’t have a large trading account yet, that’s totally fine. It’s actually a great way to test your trading strategy to grow your account. Just make sure to keep all your profits in your account so the balance continues to grow.
So, I hope this answered the question many of you have been wondering. I really just wanted to show you the simple formula you can use to calculate how much you need to trade for a living. Remember, trading for a living is completely possible, I am living proof of that. Just make sure to have a plan, stick to it, and keep your expectations realistic!
Now that you’re ready to start trading for a living, you need to find the right stocks. Not sure where to start? Then THIS article is for you: https://www.rockwelltrading.com/articles/coffee-with-markus/trading-the-wheel-how-to-find-the-best-stocks-in-4-simple-steps/