Can we make a living from trading?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 This is a particularly interesting question that I am asked regularly during my coaching sessions and to which I am going to try to give an answer.

 
Interesesting, not for its relevance (my apologies to those who asked this question I must have asked myself a while ago) but rather for the paradoxes about trading it raises.
 
First, let's try to give a precise answer. There are many ways to make a living from trading.
 
Work in an hedge fund but you will have to apply a specific  strategy and you could have limited autonomy and creativity, let not speak about the preriquistive needed to get a position in such structures.

You can also work in a prop trading firm that will let you mangane inside money and get a protion of the performance you will  generate. In some firms, you may apply your own  strategy, in other ones you have to use a proprietary trading strategy you have to religiously follow.

 

 

Or do trading with your own trading account, an activity for which you will risk your capital and be the sole master on board.

If you plan to choose the latter option, the question of the capital you have available to live from your activity arises.
 
Regularly achieving a performance of 30% per year is exceptional. I'm not saying you can't do more. It depends on your strategy, especially your experience, your skills, your risk tolerance, performance objectives etc. 
But many fund managers would like to achieve such a performance.
 
So we can think that below 200,000 or 300,000 euros, it is difficult to make a living from the trading activity.
 
Let us now provide a more nuanced answer. Imagine that you are starting a business with your associate.
You have an idea.

You write a business plan, you invest all your savings in this project in which you believe more than
everything (if not why attempt this perilous adventure?), you ask to your family members
and your friends who entrust you with a little money or invest in your business because you have won them over.

You meet banks and investors, you study the market, customers, the entire value chain with great attention and professionalism because you are convinced that your product or service will be sucess.
 
Have you ever wondered if you were going to make any money? Did you go to your surroundings and ask them if it was going to work? If you are not convinced yourself how could they be for you?
 
No, because setting up a business comes from a total commitment, from the conviction that you will get there.
 
If you are wondering if you are going to make any money then you will never take the first step.
 
At this stage, certain doubts are necessarily and usefully absent. The vital impetus and passion required to start a business evade doubt. I'm not saying you have to go headlong and do whatever it takes. I'm just saying that the question of whether you go making money just doesn't happen.
 
Well, trading is like starting a business.
 
You raise money and engage in a business with uncertain outcome with the goal of making money.
The only difference is that you are the boss, the customer and the supplier all at the same time.
 
It's the passion and the belief that you can make it happen that will make the difference. You can do scalping, day trading,
swing trading, long-term investing, having a value approach like Warren Buffet or a focused approach growth. It doesn't matter.
 
The difference with a traditional activity is that it requires extra work that may never be successful. This is a deep work on oneself and which aims to correct the emotional biases of which our childhood, society and its norms have been the vehicles our entire past existence.
 
A great trader says: "we do not deal with the market but our own beliefs".
 
And beliefs are simply what defines you.
 
Regarding the capital required to start trading I will again make the analogy with a "classic" activity.
You can create a business with 1000 euros but it will be, a priori, harder than if you start with 100,000 euros.
 
However, this statement deserves to be qualified a little. Because the one who starts with a very limited capital with the right attitude
maybe show more rigor and care than a well-endowed trader who will be less money-savvy
spent.
 
A quick word now on the interest coumponding, the so-called eight wonder of the world according to Eistein.

 

 

Imagine that you have an initial capital of 10 euro cents and
that this amount will double every day for a month of 30 days. The first day you have 10 cents, the second
20 centimes, the third 40 centimes, etc. until the thirtieth day.
 
How much will you get at the end of this period?
 
The answer is 53,687,091.2 euros.
 
Each time your performance is applied not to the initial capital but to the latter plus the associated return over each period of time.
 
I am not saying that you will double your capital every day of course.
 
But if you get a return of 20% per year (let's be ambitious) for thirty years you will have multiplied your capital
by 237. Choose the initial capital of your choice and do the calculation.
 
Contrary to what one might think, great traders started out with silly amounts that seemed ridiculous. Some like William O Neil in a time when brokerage fees were nowhere near as competitive as they are today built a fortune on markets starting with $500.
 
Moreover, if you are new to trading and even if you have significant capital, I strongly recommend that you start with a very small amount.

The first few years are very often years of losing money. It’s a period of training and education and it invariably costs money. The time it takes to become
regularly performing on the markets.
 
For those to whom one will say: "it is not possible, it gives a very important capital to start, leave that to the professionals",you will be able to hear it but not necessarily listen to it. What is possible is not for others to decide for you.

You will decide what is possible and what is not. And you will always find someone to discourage you
in your projects whatever they are.
 
Regarding professionals, first and foremost fund managers, the majority of them do not do better than their benchmark.

Their model is rather to raise a maximum of funds on the basis of a given strategy than to achieve an outperformance (which potentially involves more risk). Indeed, they charge management fees which are proportional to the mass of funds managed regardless of the performance achieved at the end of the year.

This is their model. Compare to them is therefore irrelevant. You don't have the same model when your only source of compensation is performance positive and regular.

As for proprietary traders who work for banks, they have a fixed remuneration and receive bonuses on
the basis of the positive performance achieved but never reimburse the losses they may generate. The only risk is to be fired well endowed.
 
The comparison with this type of operator is therefore still irrelevant.
 
For me, a true trading professional is one who lives from his activity by generating profits greater than the losses that his strategy will not fail to provoke and this regularly.
 
Finally, by its eminently psychological nature, trading or rather your trading will bring you satisfaction with
a lot of work but also a great passion, useful ingredient even essential in order to cross the periods
doubt and discouragement which I think are inevitable in the early years of learning.
 
Finally, at the risk of being a little provocative, it is possible that people who ask "Can we make a living from trading"are in fact waiting for the answer to the question "Is this easy to make a living from trading"?

The answer is definitely no.