Can you trade for a living?

Sara Waqar Forex

 lot of forex marketing claims are centred around becoming financially independent and being able to quit your day’s job. You will invariably come across get rich quick concepts such as ‘turn $500 into $30,000 in 3 months’, ‘how to earn $12000 dollars in 10 minutes’ or ‘you don’t need any experience to become a forex trader.’  These marketing claims go on to say that if you become a successful trader, you will be able to fire your boss and live off your trading profits, having all the flexibility in the world to spend your time as you wish.

This talk of trading for a living is overstated and misleading at best. So before you jump into conclusions and start dreaming of firing your boss, consider the following information carefully:

Understand what it means to be consistently profitable: Financial independence from trading implies that you must be a successful trader with a consistently profitable track record for a couple of years. To become such a trader requires effort, skill, time and temperament. You do not become a successful trader overnight. How much time does it take to become a successful trader?  The answer is that each person is unique and the time it takes to become profitable  depends upon  one’s temperament, knowledge, habits, preconceived notions about trading and any mentorship received, among others. Becoming a successful trader is just like becoming a successful surgeon, or a successful fighter pilot; it takes time.

 Net profitability in dollars, not percentages: To be able to become financially independent from trading, your net profitability in dollars, not percentages is what truly matters. Two equally successful traders in terms of percentage returns can be generating different amounts of profitability in dollars. An annual profitability of 50% on $200,000 means about $8000 earned as a monthly average. A 50% profitability on $25000 is only $1042 dollars per month on average, which is clearly not sufficient for many people to support themselves and their families. So not only consistent profits but also the total capital being traded can answer whether you can live comfortably with trading,

A comfortable income is different for everyone: Another factor that defines what is means to feel financially independent are your own circumstances, needs and lifestyle. If you are entitled to an inheritance, have alternate assets or businesses generating positive cash flow, a financially stable spouse or fewer dependents, you will find it easier to meet your financial goals with lesser income. Others may need to earn much more.

Consistent profitability is not monthly profitability: Consistent profitability in trading is defined as a steadily rising equity curve over months and years, not necessarily an injection of monthly profits. Depending on your trading strategy, skills and market conditions, you may be earning many times more than what you are earning from your day’s job in some months. Yet in other months, there may be a strings of negative cash flow. The skills to manage your cash flow are very important here as you cannot assume evenly spaced profitability, even with a profitable strategy. If you are comfortable only with regular monthly cash flows, you may want to keep your day’s job.

Inherent risk and uncertainty of financial markets: There is always an inherent risk and uncertainty in the financial markets which cannot be ignored and all successful traders understand that. Your annual return may vary greatly from one year to another just due to market conditions, with one year posting above average returns and another yielding below expectations.

Hopefully, you now understand that you shouldn’t have to quit your day’s job to become a successful trader. The best course of action is to focus on developing your trading skills and the correct mind set which is the actual short-cut to realizing  your dream of financial independence.