Currency Secrets

Hopefully, at one point during your forex trading career you will come to make the important decision of whether or not to take your trading full time.

Having personally made that decision and travelled down the full time trading route there are several things that you need to be aware of that I will briefly impart here.

The first thing you MUST know is:

How much money do I need to live comfortably?

To answer this question I suggest you fill out the following questionnaire…

1. How much, on an above average estimation, do you spend on groceries per WEEK? (eg. $150) Multiply this number by 52 (eg. 52 x $150 = $7,800)
2. How much, on an above average estimation, do you spend on electricity, water, gas, rates and any other utility bills per MONTH? (eg. $300) Multiply this number by 12 (eg. 12 x $300 = $3,600)
3. How much, on an above average estimation, do you spend on telephone, internet, email, data and other such internet-related expenses per MONTH? (eg. $100) Multiply this number by 12 (eg. 12 x $100 = $1,200)
4. How much, on an above average estimation, do you spend on insurance for home, car, personal and other insurance costs per YEAR? (eg. $2,500)
5. How much, on an above average estimation, do you spend on car maintenance (tyres, battery, fuel, service) per YEAR? (eg. $5,000)
6. How much, on an above average estimation, do you spend on entertainment (movies, night-outs, evening dinners) per WEEK? (eg. $150) Multiply this number by 52 (eg. 52 x $150 = $7,800)
7. How much, on an above average estimation, do you spend on rent or mortgage repayments for your house per MONTH? (eg. $1,200) Multiply this number by 12 (eg. 12 x $1,200 = $14,440)
8. If there is any other costs that be included add them here and be sure to convert the number to an ANNUAL cost (this could include such things as birthday gifts, anniversaries, Christmas etc). (eg. $2,000)

Total up your ANNUALIZED figures.
(eg. $7,800 + $3,600 + $1,200 + $2,500 + $5,000 + $7,800 + $14,400 + $2,000 = $44,300)
Divide by 12 to arrive at your Monthly Annualized Expenditure (MAE)
(eg. $29,900 / 12 = $3,692)

This will now give you some idea on what your above average costs are for the year and month are (note I deliberately mentioned above average – you want to err on the side of caution). With this figure you need to ensure that you are at least making this in PROFIT on a consistent basis. Forex traders make a big mistake by having one lucky month making a stellar return which sees their profit return the required annualized expense and they therefore assume this can happen forever.

It’s not until they’ve given the boss the flick and entered their second trading month that the consistency of the previous month’s performance dries up. They’re now forced to eat into capital to maintain their lifestyle.

So what should you do to avoid this trap?

Have at least the previous 12 months of ACTUAL trading history that shows you have met your MAE, or, if you have failed to meet you MAE at least three years of meeting your Annualized Expenditure. If you have consistently proven to yourself that you have made in PROFIT that meets your requirements then I personally would CONSIDER going full time, HOWEVER, there is one last thing you should set to achieve:

Having one year’s Annualized Expenditures worth of savings (I prefer at least 2 year’s worth – just in case)… with savings being the cash held in a bank account used EXCLUSIVELY for NON-TRADING expenses – it is not to be included in your trading capital, nor should it be traded, at most it should be placed into a term deposit or cash management account (low risk account).

The reason for this is simple: your system/method will encounter drawdowns. Where possible you do not want to eat into your trading capital, therefore, you should have enough money in the bank to see at least one year’s worth of drawdowns. When your system starts making profits again top up the savings account so that it meets your annualized expense.

Trading full time isn’t something that should be treated lightly, especially if you have a family and mortgage. Where possible look to make a slow transition from your job to forex trading so that the change is gradual and all avenues have been considered.

Forex trading can provide a great lifestyle, but it comes with extra responsibility and maturity – don’t take it lightly.