Becoming an independent trader : Are you ready?
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If you do not answer yes to all the questions in this article, you are not ready to become an independent trader. The road to being able to live off trading is long, very long. Count on it taking several years to get there. At the risk of disappointing you, most of you will fail. Not everyone is cut out to become an independent trader. There is a big difference between trading and wanting to live off it. To find out if you’re ready to become an independent trader, here are the questions you need to ask yourself:
Without motivation, you cannot progress in your trading. Don't think that attending a simple trader training course will make you a good trader overnight. We can give you all the best advice in the world, learn how to trade and become an independent trader, you have to practice. You have to want to spend a lot of hours each week. If you trade for an hour a week, it's useless. You won't get any results. You have to work a little every day to see real progress. Warning, it is very important to keep a balance between your private life, your professional life (if you have one) and your life as an apprentice trader. Don't be put off from trading. Your beginnings will be laborious, made up of numerous disappointments, a desire to stop everything.... You will think you have understood some things about trading and then the market will ruin all your hopes at once.
Starting trading is like starting a new sport. If you don't have the motivation to practice it regularly, you won't progress. That brings us to the next question.
To become good at trading (or in a sport), you have to be passionate. If you're not, you will get discouraged, you won't want to learn any more. In that case, stop trading right now, you're wasting your time.
If you've never been interested in the financial markets, that doesn't mean you shouldn't start trading. Only, on your first trading failures, if you don't have the determination to win, the desire to succeed at any price, to learn from your mistakes, to question yourself, to try to understand why you failed, then trading will get you nowhere.
You have or you don't have a passion for trading. I don't know any traders who have managed to become independent traders without having the passion for what they did.
Through training, you will end up finding a trading strategy that suits you. It may take more or less time depending on each trader but it often takes several years. It is through reading about trading, meeting other traders that one day or another we end up building the foundations of a winning trading strategy. But be careful, being profitable after a month’s trading does not equate to having a long-term profitable strategy. You must test it for at least several months, or even at least one year before you can fully engage in the activity of an independent trader. There is a difference between short and long term profitability. If you want to become an independent trader, it's long-term profitability that counts.
The longer you test your strategy, the more perspective you have to judge it. By testing your strategy at length, you will experience phases of structural market change. Whatever your strategy, there are phases where your strategy is more or less a winning one. If the drop in your trading performance is too great during certain market phases, you must be able to adapt your trading strategy. Only experience will lead to this.
There is also one very important thing with a trading strategy, and that is the trust you place in it. If at the slightest loss period, you question it, this opens the door to your emotions (see discipline in trading) and ultimately, to the loss of your capital. To have confidence in your trading strategy, there is only one solution, it is to test it over a long enough period.
That's a question that grates, and there's no need to tell you that we're not all equal. To become an independent trader and live off trading, you need capital, a lot of capital. If you believe that €1,000 or even €10,000 in a trading account will allow you to generate enough money to live off trading, you are wrong.
You will need a trading account of at least €100,000 or more. Let's say you achieve a performance of 30% per year, which gives a profit of €30,000. Do you think that's enough to make a living from trading? Yes, but that's not including social security costs and taxes because as a full-time trader, you are considered a business. Your income is professional profit. If you take away all taxes, you will only have half, €15,000, less than the basic minimum wage.
To become an independent trader and live from trading, you must:
- either have a lot of initial capital
- or take higher risks (leverage effect): This means you can have a lower starting capital (a few tens of thousands of euros) but you must be prepared to lose them. Losing must not endanger your way of life.
- Or move to a country that taxes trading profits very little : This is what many traders who live from trading do but it is a big life choice.
This point is often overlooked by novice traders, but the choice of your broker is crucial. There is a very big difference between depositing a few hundred euros and depositing several tens of thousands of euros or more. You must be sure that your broker trading is reliable.
The first element to check is its regulation. Your broker must be regulated by the AMF, the FCA or the SEC. These are the reference regulatory authorities in the field of trading. To be sure, you can check on the FINRA website for USA based brokers.
The second element to check is the broker’s financial strength. To do that, you have to go through their accounts. A good test is whether the broker was shaken by the sharp appreciation of the Swiss franc a few years ago following the SNB's decision to no longer intervene on the foreign exchange market. If so, you can't trust your broker.
The best solution remains to turn to the leaders in the sector, namely IG (on CFDs) and Interactive Brokers (on futures). You can use ProRealTime Trading to open an account with one of them and take advantage of ProRealTime's free premium trading platform for active traders.
Do you have the motivation to learn how to trade?
Without motivation, you cannot progress in your trading. Don't think that attending a simple trader training course will make you a good trader overnight. We can give you all the best advice in the world, learn how to trade and become an independent trader, you have to practice. You have to want to spend a lot of hours each week. If you trade for an hour a week, it's useless. You won't get any results. You have to work a little every day to see real progress. Warning, it is very important to keep a balance between your private life, your professional life (if you have one) and your life as an apprentice trader. Don't be put off from trading. Your beginnings will be laborious, made up of numerous disappointments, a desire to stop everything.... You will think you have understood some things about trading and then the market will ruin all your hopes at once.
Starting trading is like starting a new sport. If you don't have the motivation to practice it regularly, you won't progress. That brings us to the next question.
Are you passionate about financial markets?
To become good at trading (or in a sport), you have to be passionate. If you're not, you will get discouraged, you won't want to learn any more. In that case, stop trading right now, you're wasting your time.
If you've never been interested in the financial markets, that doesn't mean you shouldn't start trading. Only, on your first trading failures, if you don't have the determination to win, the desire to succeed at any price, to learn from your mistakes, to question yourself, to try to understand why you failed, then trading will get you nowhere.
You have or you don't have a passion for trading. I don't know any traders who have managed to become independent traders without having the passion for what they did.
Do you have a long-term profitable trading strategy?
Through training, you will end up finding a trading strategy that suits you. It may take more or less time depending on each trader but it often takes several years. It is through reading about trading, meeting other traders that one day or another we end up building the foundations of a winning trading strategy. But be careful, being profitable after a month’s trading does not equate to having a long-term profitable strategy. You must test it for at least several months, or even at least one year before you can fully engage in the activity of an independent trader. There is a difference between short and long term profitability. If you want to become an independent trader, it's long-term profitability that counts.
The longer you test your strategy, the more perspective you have to judge it. By testing your strategy at length, you will experience phases of structural market change. Whatever your strategy, there are phases where your strategy is more or less a winning one. If the drop in your trading performance is too great during certain market phases, you must be able to adapt your trading strategy. Only experience will lead to this.
There is also one very important thing with a trading strategy, and that is the trust you place in it. If at the slightest loss period, you question it, this opens the door to your emotions (see discipline in trading) and ultimately, to the loss of your capital. To have confidence in your trading strategy, there is only one solution, it is to test it over a long enough period.
Can you afford your ambition?
That's a question that grates, and there's no need to tell you that we're not all equal. To become an independent trader and live off trading, you need capital, a lot of capital. If you believe that €1,000 or even €10,000 in a trading account will allow you to generate enough money to live off trading, you are wrong.
You will need a trading account of at least €100,000 or more. Let's say you achieve a performance of 30% per year, which gives a profit of €30,000. Do you think that's enough to make a living from trading? Yes, but that's not including social security costs and taxes because as a full-time trader, you are considered a business. Your income is professional profit. If you take away all taxes, you will only have half, €15,000, less than the basic minimum wage.
To become an independent trader and live from trading, you must:
- either have a lot of initial capital
- or take higher risks (leverage effect): This means you can have a lower starting capital (a few tens of thousands of euros) but you must be prepared to lose them. Losing must not endanger your way of life.
- Or move to a country that taxes trading profits very little : This is what many traders who live from trading do but it is a big life choice.
Are you sure of your broker?
This point is often overlooked by novice traders, but the choice of your broker is crucial. There is a very big difference between depositing a few hundred euros and depositing several tens of thousands of euros or more. You must be sure that your broker trading is reliable.
The first element to check is its regulation. Your broker must be regulated by the AMF, the FCA or the SEC. These are the reference regulatory authorities in the field of trading. To be sure, you can check on the FINRA website for USA based brokers.
The second element to check is the broker’s financial strength. To do that, you have to go through their accounts. A good test is whether the broker was shaken by the sharp appreciation of the Swiss franc a few years ago following the SNB's decision to no longer intervene on the foreign exchange market. If so, you can't trust your broker.
The best solution remains to turn to the leaders in the sector, namely IG (on CFDs) and Interactive Brokers (on futures). You can use ProRealTime Trading to open an account with one of them and take advantage of ProRealTime's free premium trading platform for active traders.
