So, you want to be a trader?

If you’ve thought about becoming a full-time trader there are a few things you might want to consider before you turn in your two-week notice. First thing I suggest is to make an accounting of your obligations by putting pen to paper. I’ve done this exercise with budding traders before and for some it’s a real eye opener.

I worked with a trader a few years ago (I’ll call him Joe) who had a daughter that was born prematurely and as such had some health issues. The medical bills were large and doctor visits were frequent and this put a financial strain on Joe and his family. Even now, at 8-years-old, his daughter meets with specialists 2-3 times per month. The thought of leaving the security of a salaried position, not to mention health care, to become a trader seemed crazy. Joe was confident in his approach to the markets as well as his ability to meet his family’s needs.

Here’s a break-down of Joe’s minimum monthly outflow. This doesn’t take into account anything like dental work, speeding tickets, entertainment, etc.

  • Mortgage: $2,800
  • Utilities: $600
  • Groceries: $400
  • Health Insurance: $1,300 (if he paid COBRA for comparable plan to what he had through his employer)

Imagine going into each trading month knowing that you needed, at a minimum, $5,100 to make ends meet. That’s a lot of undue pressure! On a $100,000 trading account that’s a 5.1% return every month just to get to break-even.

I know Joe’s case isn’t the norm, and that’s not the point of this post. I want to share the process Joe went through to come to a conclusion to either trade full-time or let his dream fade. Here’s what he did.

Joe sat down with his wife (key to a happy marriage) and discussed at length what his plan was. It was a two-way discussion, not a lecture, and both had to agree to the decision. They looked at areas that they could cut back on and sat with the data for a few days. Once they both were comfortable with their accounting, they made a contingency plan. I myself have a contingency plan ( I could teach or go back to being a therapist) and believe that having one takes undue pressure off as I participate in the market. I would encourage everyone to have a contingency plan.

One of the biggest cuts Joe took out of that $5,100 deficit was his health care costs. Joe took a position with his local Costco and works just enough hours to get benefits. He mainly works the weekends and evenings (he lives on the west coast) which leaves plenty of time to devote to the markets. Why Costco? They have some of the best benefits around and they are flexible with their scheduling. Genius! He works between 20-30 hours a week and gets excellent health benefits and a modest income (about $1,100/month). The “hole” Joe has to dig out of each month was cut in half by this one action.

A few other companies that one might consider for such a scenario are Home Depot, United Parcel Service, and Lowe’s. This may not be for everyone and that’s not the purpose of this post. The point is that if the proper steps aren’t taken to account for your needs, undue pressures ensue and that can lead to poor risk management. The tendency is to treat the market like a casino or lottery ticket and that is truly a losing game.

As I look back on Joe’s decision I know that he made the right choice. Not everyone would take the time to do what he did and I think it has paid off in the long run. I’d like to hear about possible experiences you may have had so please use the comments to discuss.

This Post Has 7 Comments

  1. nick

    The 5100$ is AFTER TAX needs, he would need more like 8300$ to even get the 5100$ AT he needs. Makes it even more difficult

    1. Attitrade

      You are correct about taxes plus inflation and every unexpected item that may arise that would need to be accounted for. Not easy to do at all, but not impossible either.

  2. Zeph

    Exactly. He needs to make 100k$ a year just to break even. So on a 100k$ he needs to DOUBLE his money every single year like clockwork, for 30 years until his mortgage is paid off. A Costco job ain't gonna change that aspect materially.

    I think Joe has bigger problems if his trading plan requires him to double his capital every year to make a living.

    1. Attitrade

      The 100K was my example for the post. Joe had a larger account than that. With his minimal salary from Costco as well as no more COBRA payments he was still looking at $3,800.

      What you've pointed out though is what many people think they can do…double or even triple their money. Very few take the time to consider how difficult it is to make it as a trader. They'd rather focus on how “easy” others have said it is to “turn $12,000 into $3.8 million” or some other nonsense.

      Thanks for your thoughts.

  3. Dlylis

    If you are carrying debt, it is insane to even consider this avenue. He would do better to lose the mortgage, if he can, and work with a smaller trading account. Debt is a killer, psychologically, and financially.

    1. Attitrade

      Debt is a four letter word and yes, it does suck. Actually suggested to Joe to pay down his debt. Not sure what he did.

      I've actually seen “traders” who were using money from a second mortgage to participate in the market. Thanks for your comment.

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