The answer obviously depends on many many factors. One of the most important being the cost of life in your city. Hey, after all you can survive with 100 USD a month in Cuba!! hehe. You would only need to make 1200 USD in profits per year to be able to make a living off trading. Well but there's no trading from inside of Cuba so I guess it doesn't count. Anyways, let's say you need 2500 USD per month, that's an accurate assumption for me in Toronto, Canada. 2500 USD per month means 30 000 USD per year.
Now, the second factor, equally important: How much growth on a yearly basis can you confidently say you can achieve on your portfolio? And this is a very tricky question that leads to another question: What kind of returns are consistently achievable over the long term? Because, the fact that you made 40% one year doesn't mean you can repeat it consistently. At that level you are most likely using risks levels that are not long term sustainable. So, what is a realistic yearly return?
Well, it is a well known and sad reality that somewhere between 90 - 95% of traders lose money. Approximately 5 out of 6 Forex traders blow up their entire account in less than 6 months. And it is also generally accepted that 70 to 75% of the so called professional money managers can't beat the S&P 500.
That means, if we get to beat the S&P 500 every year, we are doing better than 90% of traders out there, who simply don't make a single penny. It also means we are doing better than three quarters of the money managers around the world.
Looking at the data presented on this article, the S&P 500 average return over the last 25 years has been 9.28%. There are better and worse years, but that's the average. So, if you get to consistently achieve a 10% yearly return on your trading capital, you my friend, are a stellar trader. And taking it a step further, if you can consistently achieve 20% per year you are definitely elite.
Obviously, you can't assume you are going to be elite. But still let's assume you are an excellent trader and you can achieve 1% return per month. That means 12% per year. Let's assume that you have, in fact, already done it for 3 years at least, otherwise you can't really say "Hey I'm going to start trading for a living tomorrow!!" Ok, with 12% per year, and a need of 30 000 USD per year to live, the math is simple: 30000 * 100/12 = 250 000.
If I were an excellent trader, able to consistently achieve a 12% yearly return, I would need 250 000 USD, that is a quarter of a million, in order to trade for a living.
And this reality is hard. It strikes us all at some point in our careers as traders. Oh that moment of enlightenment and discovery when we say, "Wait a minute! My plan of trading full time with a 10 000 dollar portfolio is totally unrealistic!" Yeah,...c'mon, we've all been there.
Over time you realize that trading is a business, like any other. The majority of traders fail. That's true but guess what? The majority of wanna-be rock stars also fail; the majority of wannabe Hollywood actors never get there; the majority of people who wanted to be elite athletes never made it, and for every one you see competing at the Olympics, there were probably 1000 that quit along the way and couldn't make it. Find any lucrative activity, any, with a success rate higher than 10%, and if you find it, please I beg you to let me know.
Like somebody said, trading for a living is not about having a little money and making it big, it is about having a lot of money in order to just make a little.
But hey, cheer up! There is hope! If you can make it (I frankly haven't) life is probably going to be more enjoyable. It won't take one year, two nor three, it will probably take more than a decade of compounding effects, which is indeed very powerful. And in the meantime, while we are not able to trade for a living yet, let's just be happy and welcome any supplementary income we can get from the markets.
If you enjoyed this article you will probably like the one I wrote back in March 5, 2011 about how much money you need to retire. Here it goes: How much money is enough?
Trading with realistic expectations
A simple strategy that beats most traders
Covered Call vs Buy and Hold. Performance comparison
Invest and Retire before you die
ETF Rotation Systems to beat the Market