Can you actually live off trading FX? When reality bites and hurts…

There are many reasons we enter retail trading and there are certain constants, that run through our decision making process eventually leading us into trading as a potential livelihood or hobby. Perhaps the single biggest reason we enter retail trading is to be independent and eventually wealthy and let’s be honest we all indulge in our fantasies regarding wealth and there’s nothing wrong with that indulgence… Very few of us experience a perfect transformation from; finding the industry, to trading the markets part time (whilst holding down a full time job) to eventually beginning to trade as our full time main occupation. As we’ve stressed many times none of us follow the same path on our way to trader enlightenment; we all follow individual paths to success that are as unique to us as our own character and personality.

One of the first questions we raise when we discover trading for the first time is; “can we live of the proceeds of trading?” After all there’s very little point in entering the industry with a target to eventually become full time unless that question is asked. How much we’ll need, in order to trade independently of a secure income from work, can differ substantially based on where you’re actually trading from. For example, we know of a very enthusiastic trader in Cairo who trades a $5,000 dollar account and looks to make circa $500 per month, which (according to him) provides a living wage in Egypt. It’s not a ‘good’ wage, but for him, as a young trader with very little outgoings, it’s providing what he terms a “living wage to help support both he and his family members”. This is at a time in Egypt when the country is undergoing huge turmoil and change and unemployment is at a recorded high for those below the age of 30, were unemployment unofficially is at an extreme. It’s currently (unofficially) above the levels in European countries such as Italy, Spain and Greece, Egypt is at 70% for youth unemployment. Therefore our man in Cairo “counts his blessings” to have found a ‘tax free’ income, that he can develop from the luxury of a decent dial up internet connection and a laptop (that’s seen better days). So here’s one raw and very realistic example of someone living off the proceeds of FX trading, in many ways it doesn’t get more realistic or harder and he’s managing to do it under pressures that many of us in the western world don’t have to suffer. But his surviving at trading FX (versus actually thriving) reveals an interesting comparison; how much profit versus your account size do you need to thrive in the FX industry? And working that out now, particularly if you’re at the start of your trading career, will perhaps prove to be one of the most important calculations you can make were trading is concerned. It will prevent ‘day dreaming’ regarding what’s possible and what’s impossible.

Traders in the UK, Europe and the USA can’t possibly survive on an account of $5,000 dollars generating circa ten percent return per month delivering a regular income, which is an outstanding return by anyone’s measurements and our Egyptian friend should be congratulated on achieving such consistency. So should ‘western hemisphere’ traders look at their initial account size and make a judgement as to their potential for ever becoming a full time trader? “Yes” is the short answer and we’ll explain why. It’s often said that the only way to make a million out of trading FX is to start with ten million. Making a ten percent return on an account should be within anyone’s grasp. You could trade perhaps only 0.1% of a ten million account to achieve returns of ten percent per annum. With the right overall mindset, money management and method, returning one million on a ten million account should be as easy as returning 1000 dollars on a ten thousand dollar account. But for most of us the reality is that we’ll never trade a ten million dollar account and that realism should extend to your current situation. Traders should, at the very outset of their trading career, as they commit their rules etc to their trading plan, be realistic with regards to the account size they have and where realistically it can take them. If you have $5,000 now, your current work doesn’t leave you with much spare savings to increase this level and you’re unlikely to receive any lumps sums by way of an inheritance from a relative, then there’s no point in dreaming, it’s time to be realistic. This is where reality bites and can injure the pride and emotions of novice traders seduced by the promises of riches that many in our industry fail to play down. But being realistic as to what’s probable, possible and realistic, is one of the first barriers new traders must overcome in order to enjoy any form of success. And as our Cairo trader proves there is always a level at which relative success can be enjoyed. It’s therefore important that new traders match their ambitions to their account size, both when starting trading and as they’re progressing.