Taking Profits/Living or Trading?

P

Pathus

I was curious as to how most traders struck a balance. The more money you make, the more money you can make later. But you still have to live and take some money out to spend. You can either spend all your money, and have little to trade with, or you can trade with all the money and keep reinvesting all the profits. Somewhere in between is where most traders are.

Where do you find the healthy balance?
 
live below your means - come what may. put aside some money (the more the better) for the not so good days that surely will come around sooner or later.
 
Quote from Pathus:

I was curious as to how most traders struck a balance. The more money you make, the more money you can make later. But you still have to live and take some money out to spend. You can either spend all your money, and have little to trade with, or you can trade with all the money and keep reinvesting all the profits. Somewhere in between is where most traders are.

Where do you find the healthy balance?
More...

I think the best solution depends upon what stage of your trading career you are in. As a relatively new trader, you must live well beneath your means, building your capital and your 'cushion' for futures living expenses during future drawdowns in your trading.

As your level of capital grows, you will hopefully get to the point where your trading capital is 5-10+ years of living expenses. Note that while this may sounds like a lot of money, this is really your business, no different than the real estate assets of someone that owns a convenience store.

At this point, I think the trader needs to be seriously thinking about eliminating all debt (mortgage, car loans, if any, etc). Once the trader reaches this point, they can consider increasing their standard of living by purchasing a larger house (appreciating asset, pay cash), and taking nicer vacations, etc.

During this period, the trader needs to think about what assets they will need for retirement, and accumulate those assets outside of their trading capital. By keeping retirement funding outside of your trading account, you will reduce the risk of loss that might occur to your retirement if you blowout your trading account.

To summarize, live below your means and save. Only after you are in extremely comfortable financial shape should you consider increasing your standard of living substantially. Trading is a tenuous career, with much greater risks than a corporate position. As a result, you must plan and spend much more cautiously as a trader. My two cents...

-Eric
 
Trade with a prop firm. Put up enough cash to give you a cusion then withdraw your profits as they build. All the while you have all the buying power you need. Account equity doesn't really matter.
 
There seems to be a number of ET traders here who have the ability to post consistent numbers as evidenced by the blotters they put up. These kind of numbers ,assuming they trade in a prop firm or retail using 5-10 times their cap contribution, seem impressive in the hedge fund world in terms of % return. Why can't they take their track record, raise $10M , keep 20% of their Pnl and take 2% of the top. It would be nice to have a sure 100K off the top! My only guess is that whatever strategy they use to generate those returns are not scalable.

Would it be as good if not better to think of a strategy that is scalable, making a consistent,non volatile 3-5% off of risk haircut and shop yourself around to the big hedge fund dollars? If I have 10K in haircut risk per month and only make a 5% per month, it would not be enough to live on- $500 per month. However, would it be not attractive to the hedge fund world where you can then collect your 2/20 on much higher capital base? Thanks.
 
GATrader,

I have not received any offers yet. I want to trade institutional money. I do not trade with a prop shop. I am a retail Forex Spot Currency Trader and am building a record here in ET in my Journal...

I work from home....and am hoping for an offer to trade institutional money. I am licensed with the CFTC as a CTA, but I have not renewed my registration with the NFA, which would need to be done. I currently trade my own money only.

I am not a salesman, and need a big offer, as I do not do well presenting myself and my systems...I hope after a few years of trading my system, somebody will appreciate me. If not I will build up my own capital brick by brick...

My system demonstrated in the link above, that I posted in this thread, is scalable (just take the 5k, I am trading live with, and multiply what I do with 2000, no problem in the Currency market, it is huge!)...I just need the capital, but don't want to talk to clients...

I would think that there are many institutions that would love to make a projected 47% a year with a max of 17.1% unrealized drawdown so far...Deduct from that the standard 2/20 deal..and everybody is happy.

You saw what happened to Acrary here. But I am not in his league, and would never pretend to be.

Michael B.

I am not interested in retail....
 
Quote from GATrader:

There seems to be a number of ET traders here who have the ability to post consistent numbers as evidenced by the blotters they put up. These kind of numbers ,assuming they trade in a prop firm or retail using 5-10 times their cap contribution, seem impressive in the hedge fund world in terms of % return. Why can't they take their track record, raise $10M , keep 20% of their Pnl and take 2% of the top. It would be nice to have a sure 100K off the top! My only guess is that whatever strategy they use to generate those returns are not scalable.

Would it be as good if not better to think of a strategy that is scalable, making a consistent,non volatile 3-5% off of risk haircut and shop yourself around to the big hedge fund dollars? If I have 10K in haircut risk per month and only make a 5% per month, it would not be enough to live on- $500 per month. However, would it be not attractive to the hedge fund world where you can then collect your 2/20 on much higher capital base? Thanks.
More...

A few reasons why successful traders don't necessarily want to jump to the hedge fund world. There have been a few active threads on the subject in the past. I'm not going to rehash the whole argument here, but a few points...

Your first guess is a biggie- salability. independent traders have their small size as an edge over the institutions. No secret that it's easier to make impressive % returns on a smaller base vs. 8 or 9 figures. As far as just thinking up a scalable strategy that can return good numbers, it's obviously not that easy. Get in line behind every quant and the thousands of other newbie hedge funds.

Here's the thing though. If you are good and you've been good long enough to have a track record that can raise $10M then there is no reason you shouldn't have a couple hundred grand in trading capital. Take your track record and your cash and you can find prop firms that will give you $10M in buying power AND let you keep 100% of the profits. Prop leverage can go much higher than 5 or 10x.

The other thing is that a lot of guys just don't want the hassle of being a hedge fund principal. People to answer to, expectations, regulations, etc. That's too much like a real job.
 
Thanks for the reply. This article in the Futures Feb 05 issue shows 2 guys utilizing conservative strategies where they manage to gain 10-15% on their assets under mgt of $50M. The reason they as individuals are able to take home maybe 20% of that plus a certain 1%-2% of that 50M is that they developed a conservative system to crank out non-volatile profits at par or slightly above their peers. Yes there are concommitant headaches associated with managed dollars , but 1-2% of assets under mgt on a conservative strategy adds up. I am in no way saying it is easy but might be easier than having to stare at screens tick scalping all day w your own cap.
 
lescor and GATrader...

I guess, I am destined to trade my own Capital, as I am making no effort with resumes. I really am not looking!

I guess it is silly for me to expect to get a PM offering me capital to trade...just silly!

Anyways, thanks for the ideas...My system does not make any money for prop firms, as it is a carry system in currencies......

Michael B.
 
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