We’re living in an interesting time in the history of the stock market. The number of retail traders (people like us) has more than doubled since 2019. 1 Options trading has risen 42%. 2 Robinhood claims to have added 3 million users in the first quarter of 2020 3, or more than 50% growth in first time investors. 4 The numbers are staggering and it’s awesome to see the market being used by more than just Wall St. professionals.
The rise of the retail traders is also very troubling. Robinhood’s co-CEO Vlad Tenev told CNBC that “we saw an impact of people depositing their stimulus checks into Robinhood. We saw deposits that were equal to or multiples of the stimulus amounts.” 5 The stimulus check he’s referring to was from the CARES Act, which gave anyone who was unemployed during the onset of the COVID-19 pandemic an extra $600 per week.
Most traders are not trading with sufficient capital!
How much capital do you need to trade full time? In order to determine the starting capital, you have to know the total cost of your living expenses. The cost of living is the total of all expenses paid out, which is money going out to pay for rent, utilities, groceries, car payments, health insurance, clothing, monthly subscriptions, entertainment, etc. Anything that requires you to withdraw cash from your investment account should be considered an expense.
Let’s say that all your expenses for the entire year is approximately $36,000 or $3,000 per month. With this disposable income in hand you quit your job to trade full time. Your goal as a full time trader is to make a profit that will cover your expenses and build capital.
If your monthly expense is $3,000, then you need to make a minimum of $3,000 plus an additional ~35% to cover taxes. Or, $4,050 monthly profits. The market is open for 253 days per year (a full year minus the weekends and holidays), which means you need to make an average of $192.10 per day, which is 0.54% of your total capital ($36,000) per day.
If you break even and your P&L in your first month of trading is ZERO, then you need to make 0.62% on average per day or $206.01. If your P&L after three months is ZERO, then you need to make 0.92% on average per day, or $248.71. The pressure to make money adds up!
If you start off with an extra half of your living expense as your starting capital, then you’ll be in better shape to withstand the downtimes and possibly build your capital. Think of the extra half as an emergency fund where you have 6 months of your monthly expenses saved up. Wouldn’t that make you feel more comfortable trading?
Here’s the formula:
Capital = Cost of Living * 1.5
| Cost of Living | Starting Capital |
| $12,760 | $19,140 |
| $36,000 | $54,000 |
| $60,000 | $90,000 |
| $120,000 | $180,000 |
I would never recommend anyone to dip into their savings to start a life as a day trader. The starting capital listed above is extra that’s on top of retirement and other types of financial assets that make up your net worth.
You should only invest with money you can afford to lose!
Can I be a full time trader with $10,000? The odds are heavily stacked against you, but making it as a full time trader with limited capital is possible. Anything is possible with an ability to quickly learn and a determination to build the proper mindset of a predictably profitable trader.