The Bad News
Time for a reality check. Certainly all of the above benefits are there to be enjoyed, but it’s a huge step from full time employee to full time trader. Are you really ready to give up that monthly pay-check just yet? Can you really cope not knowing how much money you’re going to make month to month? Are you prepared for the months when you actually lose money instead of make it? There are many things to consider before taking the leap of faith.
Considerations
Before you even think about trading for a living you have to know how much money you need to live on, that is, how much cash do you need to generate every month in order to survive. As a financially minded person you already have good home accounts, or are at the very least vaguely aware of where the money goes. So take the annual figure (monthly is no good, you need to account for annual recurring items like insurance premiums, car servicing, and vacations), add 50% and divide by 12. Why add 50%? Because there will always be unexpected expenses, and as traders we are always prepared to expect the unexpected.
An important but often overlooked aspect of under capitalisation is the effect it will have on your trading; if you are trading because you need the money, then you are trading scared and you’re almost certainly going to lose. You cannot distance yourself from the money-aspect of the trade if you are relying on the money.
Living expenses are only one part of the financial equation. Next you must consider how much trading capital you need. This is the money actually facilitate trading, in other words your account balance for trading margin, and the money you will be spending on data feeds, software, and internet access. You must account for this separately, you cannot start eating into your daily living expenses money just because you took a bad trade and need some more margin.