How Much Money Do You Need To Trade For A Living?


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If you have a hat, you might want to hold onto it. Get the smelling salts out……and keep them close by.  If anybody is in the other room, call them in and tell them to assume the “I’ll catch you” stance behind you.


I wasn’t always a babe magnet.

It’s true.  In the dark days before I met my wife, I wasn’t actually beating women off with a stick.  I mean, I had dates, but they were not as numerous as you would assume.  This meant each one was special, however one in particular stands out.

I was very young, working as a bellman at the Sheraton Newport, and living with four guys down by the beach in Newport.  One night while at a local watering hole I spotted a beautiful girl who looked like she didn’t belong there.  Since I was already drunk, I ambled on over to her, ran my mouth, and for some reason ended up with a phone number and a date for the following night.

In the sober light of the next morning I panicked for a moment as I realized that this girl would expect something a little bit “higher class” on our date that evening. Unfortunately, I had about thirty dollars to my name until my next bell shift.

Let me be clear on this, not only thirty dollar in cash….thirty dollars to my name. There was no ATM card, no credit card, no parents to call on for extra funds, thirty bucks was it. Fortunately, I had a place just for situations like this; The Ocean View Bar & Grill.

The move with this place was that even though they served bar food (read: cheap food), this hidden gem was situated outside the back of the Hotel Laguna right on the sand, with one of the most picturesque views in all of Southern California.  Once your date saw the view as you emerged onto the patio, they could have served corn dogs and Twinkies and she would have still thought she was at the best five-star restaurant in town.

I figured I could easily bring the whole evening in, with drinks, for under twenty bucks (remember this was almost twenty-five years ago), so I headed out to pick her up in my 67′ Mustang, rocking my Member’s Only jacket, and blaring Flock of Seagulls from the speakers.  “This is going to be my night tonight,” I thought to myself.

We pulled up to the hotel, parked the car, and headed inside.  Being the gentleman I am, I let her go ahead of me down the hallway that led to the entrance for The Ocean View Bar & Grill, at the end, on the left.

The left.  It’s on the left.  Did I mention that the entrance to the Ocean View Bar & Grill was on the left? But not knowing where we were going, she went straight, instead of left.  Straight.  Straight into Claes……their fine dining restaurant.

You know how when you get that gap down before the open on unexpected news in that large position you have been massaging for weeks and a cold shiver goes down your spine?  You immediately think to yourself “can I pull myself out of this, or do I just cut the cord and bail?”  That was my thought at that exact moment.

But what was I going to do, try to wave her out and try to explain, in front of the maitre d’ and customers, that I didn’t have enough money for THAT restaurant?

Fortunately, she didn’t drink alcohol, and in order to not make her feel self conscious, I drank (free) water too.  She ordered the chicken, and I “having had a late lunch” chose the small house salad and the complimentary bread.  I got out of there for $29.50, including tip.  The valet got the other fifty cents and we ended up dating for two years until she moved to Canada.

At that point in my life, thirty bucks could sustain me fine, as long as there were no unexpected expenses, but nowadays that won’t even cover a Pokemon DSi game for my daughter.  I am at a different stage in my life.

I was reminded of this story by a question I got in response to my recent post “9 Reasons Everyone (Yes Even You) Should Learn To Trade.”  The question was, “how much money do you need to trade full-time?”

Even though my post was referring to part-time trading, it is a good question to ask. The answer however varies depending on what stage you are at in life.

There are considerations based on what time and financial stages you are at.  If you are a young person or with minimal expenses, you can afford to start with much less than if you are a forty-five years old, with a house, car payments, kids, etc.

You also have to factor in what psychological stage you are at when deciding how much of a grub stake you will need.  In periods of no profits, or horror of horrors, actual losses, how much money will you need in the bank so you don’t get nervous and rattled, something that will only hamper your trading success.

And what about your style?  What stage is that at?  Will you be day trading or swing trading?  If you are day trading you will get more leverage on your position which can theoretically make you more with less, but you will need at least 25K (or in reality 30K) to be classified a pattern day trader.

Swing trading requires less money to fund an account, but there will me more periods of “waiting” for a move where your money will not be working for you at all.

So here is my best starting place, which you should modify based upon your own personal stages in terms of time, finances, psychology, style, etc.

If you are somebody with little or no overhead I think you need to have enough money set aside to cover at least six months of your living expenses NOT INCLUDING YOUR TRADING MONEY.

If you have higher monthly expenses I suggest you have at least one year’s money set aside NOT INCLUDING YOUR TRADING MONEY, because you have a larger burden to support and there is more of a chance you will need that extra cushion.

As far as how much trading capital you will need, it will depend on your style and what you trade.  Sure you can day trade with only 25K but one loss and you will be below the minimum.  And what if you want to trade $AAPL or $GOOG?  25K is only going to get you 100K of buying power which is only about one hundred and thirty shares of $GOOG.

Ideally it would be best to have enough day trading capital to trade 250-500 shares of the most expensive stock you plan to trade.  If you are going to swing trade you will need more capital because you will only get 2x overnight buying power, and though you may get larger moves than in day trading, they will be fewer and will take a longer time to play out.

In the end you have to figure out how much money you need in the bank and how much money you need in your trading account to give you the piece of mind that will allow you to focus on your trading.  Then I would add another 20% to each.

You also need to determine what a “reasonable” annual return would be on your trading capital, and make sure your account equity is enough so that the return can not only sustain you, but grow your account balance.

Finally, I am a big believer that if you can’t trade well with a small account size, having a larger account size won’t help.  The best way to find out if you can trade well before you make the jump to “trading for a living” is to first successfully master trading part-time, over an extended period of time, in all different market conditions.  Then if your trading skills are proven out, the size of your account will be less important.

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