On the face of it trading full time looks like one of the most fascinating careers for some

simple reasons.
The Wow Factor
-> Market timings 9.00 to 3.30. (Wow a 6 1/2 hour working day. )
-> Work from home. (Who wont love to work in their boxers ? )
-> No Boss, No Appraisal (I am the Boss )
-> Total Mobility. Work from anywhere with a net connection ( Did you not see that pic of a
trader with a laptop in Goa ? )
-> Tons of Money (If you are full time trader you make more money with the keyboard in
your hands)
-> More time with Family. (What would i do if i get done at 3.30)
-> I can take vacations whenever i want to (and pray its not the big up or down day for a
discretionary trader. Traders are more weekenders)
-> I just need to keep executing the system and chill. (The backtest results are just too
good to think of position sizing)
(These reasons are used by sellers of trading systems, mentoring programs, softwares,
extensive trainings etc )
A lot of other reasons can be added in relation to the existing job/business frustrations.
Some things which a real trader does not get against a salaried job or a strong cash flow
business.
The Comfort Factor
-> A monthly pay . ( A trader can have bad months and positions he would like to stick to.
Cash flow concerns)
-> 20 days of paid leave. ( Can you create a clone ? or is it easy to trade from the
Himalayas)
-> Salary Hikes / Appraisals/Inflation adjustment. ( A trader may get drawdowns and big
money spikes but its terribly lumpy)
-> Job Security or Alternative Opportunities (Forget security there is a high burnout and
failures in trading)
-> Experience increases value in job market and even bonuses . Look at your boss ( Your
expected return is a factor of market trends and not your age. Your capital increases only
when your returns increase beyond expenses big way)
There can be a book written on it but a few points which i could think quickly on a Saturday
afternoon.
Now lets get to how much capital is needed ?
First let us decide a few quick things you should know about yourself before even thinking
of the capital requirement. ( this is a quick calculation and not an exact guideline)
Step 1 Your current salary post tax and expected growth rate of salary.
Step 2 Your absolute living expenses , inflation and contingency fund.
Step 3 The savings you have for trading capital.
Step 4 How much of your savings can you risk if its not working out.

Step 5 Will you be borrowing capital and if yes what is the cost. ( if you are borrowing
from friends they expect more than bank return or at least return of capital )
The next step is how much return you can make. ( Lets keep it assumed return. Reality
turns out to be way different than expectations or back tests)
Assumptions
-> You better be looking at expectation of coming 5-10 years average with a lot of cycles
and not the average return of last 6 months or 6 days.
-> We are not going into drawdowns or losses or all that hurting calculations. Assuming
that you will make what you think.
-> We assume leverage will not be huge and that you dont suffer a 100% capital erosion.
How much returns do you expect you can make on an annual basis. ( post tax to simplify
calculations) ?
-> 10%
-> 20%
-> 30%
-> 40%
-> 50%
-> 60% . ( there i stop if you can do more than this over 5-10 years
consistently please mail me . I will plead you to manage my money and a lot of people i
know)
Now let us not get very mathematical and try making an dumb estimate through a scenario.
Mr Wannabe Super Trader
Annual Income 12 lakhs post tax.
Living Expense 8 lakhs
( Giving a skip to salary growth or inflation for now and expected return= salary. No
compromise. )
So if you need 12 lakhs a year how much capital is needed at various return points.
Earnings Wanted
1200000
1200000
1200000
1200000
1200000

Exp
Return
10
20
30
40
50

Capital
12000000
6000000
4000000
3000000
2400000

Now suppose even if you expect a 5% CAGR in your salary. ( not considering that 15-40%
raise every 2- 5 years on a job switch)
This is how your capital needs to increase every year to compensate for it even on a
duration of 5 years.

Expected Earnings
1200000
1260000
1323000
1389150
1458607.5

Exp
Return
30
30
30
30
30

Capital
4000000
4200000
4410000
4630500
4862025

Capital to be
added
200000
210000
220500
231525

This is assuming your returns are linear at 30% year on year.

Now lets assume you are not good and consider that if you dont make money over 2 years
or lose 30% of your capital you quit. ( Not a criteria but just an assumption)
Can you really afford failing and do you have that much contingency fund ?
Will you be able to take a hit of 20-30% on your trading capital even if it is interim or the
end of your trading stint. Do you have a contingency fund to pay up your living expenses in
a drawdown period?
Even if you can make a 20-40% return the capital requirement is roughly 3-5 times your
expected earnings and ideally around 8-10 times given the drawdowns, bad months, trading
break, vacation etc.
Lets make it a little more troublesome.
- > Put a tax rate of 30% on the trading income. You can reduce it through expenses and a
good CA.
-> If you are borrowing capital the cost of capital in India is 11-24%.
-> How will you pay up your expenses in times of drawdowns. You may essentially need at
least 1 2 years salary in addition to your trading capital.
-> How will you be able to add capital with increasing inflation or do you believe that a
couple of years as a fulltime trader your expected returns should increase ?
The questions can continue for longer and longer. So let us cut the post here and review it
post comments from readers.
Also before ending the post let us add an additional though on How to become a Full Time
Investor.
-> Estimated time for returns may not be annual or monthly.
-> Only cash flow is through dividends.
-> Dividend yields can be 2-3%.
A full time investor may need 30-50x the expected earnings unless one intends to reduce
capital for expenses. But the kicker in investing is compounding.