So You Want To Trade For A Living: Monetizing Your Trading


If you have gotten this far in my series on trading full-time and are still intent on making the plunge, you are going to find one of the most frustrating things you will have to deal with is your income, or more specifically, the ebbs and flows of your income.

The goal of every good trader is, or should be, to make a consistent and steady return; something you can count on every week, or month, or quarter.  It’s a nice theory, something to strive for, but in the real world it’s pretty much like communism…only really works on paper.

You are going to have times when you make money, sometimes a lot of money (hopefully).  And you are going to have times when you lose money, sometimes a lot of money (hopefully not).  This back and forth can play havoc with you mind, causing you to lose focus, stray from your methodology, and ultimately undermine your ability to be profitable.  What you need is something that helps to normalize your income, that smooths out your equity curve, and this is where thinking of your trading as a business comes in.

First off let me say that I fully acknowledge that most traders at heart are mutants.  Mutants in the best mad scientist, comic book mogul, Howard Hughes-ian sense of the word.   Yeah, we give lip service to the whole “freedom” part of the story; how we can come and go as we please, decide when and how much to work, and trade on a beach from our laptop if we want to, but come on?  Why not just throw some princesses, fairy dust, and a pink unicorn named “Spirit” into this yarn while we are at it?

At the core of our freakish psyche we know why we really want to trade; so we don’t have to deal with customers, or employees, or bosses, or HR departments, or OSHA regulations.  We basically just want to sit in a room, by ourselves, and coin money without distraction, free to urinate in a Gatorade bottle at our desk if we wish.  And as beautiful and uplifting of an image as that seems, unless you are an extremely talented trader, it is just not a reasonable reality; or at least not one you can expect to achieve as a newbie full-time trader.

In a previous post in this series I mentioned that the most important thing that you could do in preparation for making the transition to being a full-time trader was to track your trading for an extended amount of time (minimum one year) and to be able to display your percentage return and drawdown in report form.  And here is why.

By treating your trading like a business, and by being able to show a track record of trading success, it opens up ways for you to monetize what you are already doing, with the goal of providing additional streams of revenue that will help stabilize your income, and give you piece of mind.  There are numerous was to do this, some of which I have listed below, starting with those that are the most intrusive to your trading and ending up with some which are very lightweight add-ons.

Running Money

A lot of retail traders don’t think about this option, and for good reason.  There are a variety of regulatory, legal, and structural issues involved in setting up what in essence is a hedge fund and these may be too complex and cost prohibitive for the average full-time retail trader to attempt, especially as a newbie.  However, if done correctly, the compensation may be worth the aggravation for the more adventurous of traders.  And it really just comes down to math.

If you have one hundred thousand of your own money to trade and you make twenty-percent in the first year you pocket twenty grand before commissions.  But if you are trading one million dollars of client’s money and make that same twenty percent, based on a normal two and twenty structure, (two percent of total assets as a management fee and twenty percent of profits as a performance fee), then your compensation for the year would be sixty thousand dollars. Ding, ding…..!!!  That’s two hundred percent more income than if you were just trading your own money.

And if you are really good, and make outsized returns for your clients, you can raise your fee structure to “two and thirty.”  And if you are really, really good; like Stevie Cohen good, you can raise your structure to the same as SAC Capital’s “three and fifty.”  Of course SAC has averaged a 30% annual return over the last twenty years and only had one losing year, but its nice to have something to shoot for.

This is a “heavyweight” way to monetize your trading.  It involves approaching high net worth individuals and “selling them” on your ability to bring them unusually high returns; which is why having a documentable history of your trading is so key.  This, in addition to giving them some feel for your performance, will show them your methodology, and their expected average drawdowns, all information that most serious investors will demand.

Trading Newsletter/Chat Room

You are already going to be doing charting and analysis for your personal trading, so why not make it available to others and charge a monthly fee?  A nightly newsletter showing set ups or potential trade candidates is a pretty simple way to do this.  This option is definitely much more lightweight than running money, although it will require you to manage your subscriber base and set up some sort of payment processing like PayPal.

Another option that can be either an add-on to your newsletter or offered as a standalone service is a trading chat room.  During the trading day you can allow subscribers to login and watch your live commentary and trading calls while you trade your own account.  You can choose the amount of back and forth interaction you have with your chat room participants based on your comfort level.  I’ve seen traders even run their chat rooms with audio or video chat, both of which can be muted if you need to bring the Gatorade bottle out.


Still a mutant?  Still want to just trade your own money?  I wish you the best of luck, but if you find that the swings in your P&L are making you uncomfortable, don’t be afraid to branch out just a bit and leverage what you are already doing to give yourself some financial piece of mind.

Previous – So You Want To Trade For A Living: How Much Money Do You Really Need?

So You Want To Trade For A Living: How Much Money Do You Really Need


How much money do you really need to begin trading for a living?

I’m not good at onomatopoeia but if I were, this would be the perfect place for me to insert the written version of a drum roll.  As the buzz grows louder and louder and the intensity, now palpable in your chest, reaches its near orgasmic conclusion, with a Wagnerian thunder-clap I would then reveal the long-awaited answer……

I have no friggin’ idea!

If you came to this post thinking that I was going to give you some “one size fits all” answer to that question you really need to leave.  I’m serious…leave!  Get the hell off my pages and delete this blog from your bookmarks, because your need for a quick and easy answer already reveals a flaw in your character that I guarantee will cause you to blow up your entire account within a matter of months, and I’m not going to take any responsibility for ruining your life.

[Note to self…..refrain from writing blog posts before you have had your morning caffeine.]

Determining the amount of money you need to start down the path of trading for a living is a complex process and one for which there are no shortcuts.  The biggest and most lethal mistake that traders make when they decide to go “full-time” is being undercapitalized.  It will be your “patient zero” of mistakes, from which all others will be spawned.

I wish I could make it easy and just give you a formula like….

 [ (Age of paternal grandmother at time of death) x (your current shoe size) ]  / the square root of the CPI = Amount need to trade full-time

….but that’s not how this works.  Fear not though, for just as there is a way to determine your correct position sizing by reverse engineering the process, we can do the same with this conundrum.

Quality of Life

First, let’s begin at the end, so ask yourself, “how much money do I need to make in order to support my desired quality of life?”  You will see that I have phrased this question in a very specific way.  It asks you to think.  To think about what your “desired” quality of life is.  This is key because depending on the stage and circumstances of your life, you may have some flexibility in this area that will help you to reach an acceptable answer to this question.

Are you early in your earning years, unmarried, with no children, mortgage, or student loans to service? Are you supporting a family and a debt structure, close enough to see the retirement train, still off in the distance, but definitely coming down the tracks?  Or are you somewhere in between those two examples? Wherever you are, you need to decide what you need to make in order to have piece of mind, financial stability, and ideally the ability to grow your net worth.

Once you have that number in place, then you have to determine what amount of capital is needed in order to generate that number based upon a reasonable return on a percentage basis.  If you have prepared for your move into full-time trading as I outlined in my previous post in this series, then you should already have a rough idea of what that percentage return will be on average.

The Pure Play

Let’s start with the most conservative and straightforward approach that assumes no leverage, meaning you open a margin account in order to have buying power returned immediately when a position is sold, but you don’t use that leverage.

So for example, if you have been averaging 20% return for the last five years, and you need to make $50,000 a year in order to support your desired quality of life, then the magic number for you is $250,000 of working capital.  But wait, there’s more.

Throw an extra 20% onto that number to give you some cushion….that makes it $300,000.  But there’s still more.

You need to have a minimum of one year’s expenses saved in order to start your new venture without the daily pressure of knowing that every one of your trades is being done  “to make the rent.”  Now you are up to $350,000.  This is fun isn’t it?

Sure, it’s a lot of money to some, but this scenario will give you the most piece of mind and ideally a longer runway in which to achieve consistent profitability.  This number will obviously change based upon what your actual average return has been and the amount of money you need for maintain your desired lifestyle.  Make 40% on a regular basis the number goes down, but if you need $100,000 to stay in pretzels and beer, then it goes up.

But What About Margin?

Many of you are saying to yourself, “Brian, what about the magical powers of margin?  Why do I need so much money when I can get 2x buying power for swings and 4x for day trading?”  Good question.  Let’s take a closer look at this bitch-goddess of trading.

There is no doubt that the proper use of margin can enable you to reduce the amount of capital you need to sustain your desired lifestyle, but….

In most cases you are about to go from the security and piece of mind of knowing that every two weeks you will be getting a paycheck to an environment where you may have a whole month where you don’t make any money.  Maybe even a whole quarter.  Even wackier than that, when was the last time you got your company paycheck and it said you actually owed them money?

The mental transition that goes along with starting to trade full-time can be perilous.  You think you know how you will handle it, but you really don’t until you get there.  Do you really want to start this, well let’s just be frank, risky venture, having to leverage up your account equity?  Margin can make you money fast, but if can lose you money even faster if it is not used correctly as part of a risk based methodology.

The ideal situation would be to go into full-time trading fully capitalized, and then once you have completely transitioned and become comfortable with your new career, only then begin increasing your use of leverage while freeing up and segregating your excess capital from your trading activities.

The Wing and a Prayer

But let’s just assume, in theory of course, that you think you are the next coming of Marty “Buzz” Schwartz, and are going to crush it right out of the gate.  You want to know the bare minimum that you would need to proceed, right?

There are traders that I personally know who support their desired lifestyle with only $5,000 in trading capital.  Yes, you read that right.  Five thousand measly dollars, but that is because they trade with a prop shop that gives them 10:1 leverage on their money.

And they day trade only, with the goal of chopping out between $800 and $1200 from the market on a daily basis.  With the markets open an average of 250 day per year they are shooting for $200,000-$300,000 annually.

But these are highly focused traders with a style they have perfected and are comfortable with.  They are like machines who don’t chase red herrings or the latest stock being profiled on CNBC.   Is that how you are currently trading?

If so, then by all means feel free to jump in short-stacked.  I would still highly recommend that you have a least one full year’s worth of money set aside, separate from your trading capital, and that you find a reputable shop who will give you the needed leverage.  Best of luck to you.

The Average Joe

In all honesty, this is the category that most are going to fall into; not having the ability or desire to do the full “Pure Play” but having at least enough common sense not to try to attempt the “Wing and a Prayer” option.  You are going to come in with a decent chunk of change, but you will probably have to use overnight or day trading margin on a semi-regular basis.  If that is you, then as much as I hate to do this to you, I am going to have to answer this blog post’s title question by revisiting previous questions.

Questions you need to ask yourself and honestly answer.

  • How much do I need/wish to make per year to live my desired quality of life?
  • How much reserves, separate from my trading funds, and do I need for piece of mind?
  • Am I comfortable/disciplined enough to use margin right out of the gate?
  • What trading style am  I most comfortable/successful with and what capital requirements does it necessitate?

And most importantly…..

  • What amount of money do I feel I need to start with to HONESTLY GIVE ME A FIGHTING CHANCE AT SUCCESS?

You will notice that I have overused the term “honestly” here in this section because everything thing else I am talking about doesn’t matter if you are not honest with yourself in determining not only you lifestyle and financial needs, but your trading ability and mental toughness.

Don’t get me wrong, I’m not saying that you must have no doubts, and believe 110% in your conviction that “everything will work out.”  Nothing in life is a sure thing, and I don’t want the normal question marks that are a part of every major life decision, from changing careers, to getting married, to having kids, to deter you, I just want to make sure you take this decision with your eyes wide open.

Additional Sources Of Revenue

But Uncle Brian is not going to leave you in a lurch here, without some (hopefully) new or different insight into how you can financially stack the odds in your favor when trying to become a full-time trader. After all, that is what you come her for I hope, not just an endless regurgitation of worn and weary platitudes, but real, practical, and relatable information on the markets, trading, and life!

Previous – So You Want To Trade For A Living: Making The Transition

Next – So You Want To Trade For A Living: Additional Sources Of Revenue

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About Brian Lund

About Brian Lund

Great father. Good friend. Decent writer. Lacking husband. Solid drummer. Sometimes funny. Often A-hole. Terrible poker player. Too smart. Punk rock. Work in an ice cream shop.

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