So, You Want To Be A Full Time Forex Algo Trader
It happens every night. Right before you fall asleep, thoughts drift to an image of you lounging on a tropical beach, fruity adult beverage in one hand, fingers of the other hand tapping on your phone’s trading app. Or maybe the image is of you sitting at your desk, in your pajamas, monitoring buying and selling of a hundred automated trading algorithms, from the comforts of home.
That is the life of a full time forex algo trader, you think. Or is it just a dream?
While many people imagine trading as a small piece in a glorious, carefree lifestyle, the reality is a lot different. Are you cut out for one of the hardest professions around? And if so, what are some different ways you can be a full time trader? This article answers both of those questions. To be clear, I am focusing primarily on algorithmic or algo trading here, but many of the points also apply to other types of popular trading, such as discretionary or chart trading.
Is Forex Algo Trading Even For You?
To succeed in any endeavor you really need two things: desire and talent. True success is enjoying what you do for a living, whether you are a trader, a plumber, a firefighter or a business person. You have to really want to be in the profession you are in. That will help you get better, to increase your knowledge, and to eventually become tops in your field.
Of course, having desire is not enough. You must have the talent, too. I wanted to be a pro football player when I was a child. The desire was certainly there. Unfortunately, the talent in my skinny, uncoordinated body was not there. Truly, you’ll never get far without talent and aptitude.
So, how does this apply to trading, and algo trading in particular? Well, first off you have to have the desire to be a trader. Do you have a burning passion to trade? Can you handle working alone much of the time? Trading is ultimately a solitary “you against the market” existence, and that is difficult for many. Can you remain optimistic in the face of trading drawdowns? Most people cannot thrive under these conditions. That’s something to keep in mind as you look to trade.
The second requirement is having the talent to trade, along with the required skills. If you are just out of school, chances are you never traded, so this is a big unknown. But for others, years of part time trading and programming strategies usually precedes full time trading. In fact, the dream of most part time traders is to become a full time trader.
If you are in that camp, have you been successful at part time trading? Ideally, you want to have 2-5 years of consistently profitable trading on a part time basis to even consider being a full time trader. Do you not only love to program and test new algo trading strategies, but also do you have the skills to do so? If you don’t have all that, how do you know you will even be a successful full time trader?
Full Time Algo Trading Options
At this point, let’s assume you are confident in your desire to trade, and you are convinced that your part time success is a happy precursor to full time trading wealth and enjoyment. What is the best way to be a trader full time? Here are some of the most popular options.
Algo Trading, In Your Pajamas
When most people think of full time trading, they picture the beach or pajamas I described earlier. Certainly that can be true – as a full time trader I have awoken in the middle of the night and traded in pajamas before. But it is not as easy (or fun!) as it sounds.
To be a private full time algo trader, you first need a substantial amount of trading capital. The exact amount depends on the person, but let’s assume you want to earn $150,000 pretax from trading. To do that, without taking unnecessary risks, cannot easily be done (if at all) starting with a $5,000 account. Sure, some snake oil educators and trading room operators out there will tell you that it is easy. However, the reality is small accounts are more likely to get wiped out long before they have a chance to achieve huge returns.
So, let’s say you earn a very respectful 30% per year trading, with acceptable risk. That means you need a $500,000 account to generate the kind of income you desire. It also assumes that you do not add to your trading capital, which you of course might want to do. All things considered, generating a full time income is no easy task.
As a full time pajama trader, though, you can always supplement your trading by ancillary activities, such as selling trading signals. Zulutrade.com is a site where clients subscribe to signals you provide, and if your trading is good, many people will flock to join. Another route, one that I have taken personally, is to sell expertise via books, workshops, and other trading educational materials. While not exactly trading, your trading knowledge and experience can help smooth your income fluctuations when the inevitable trading drawdowns occur.
Prop Trading
If you are starting out with limited trading capital, a proprietary trading firm might be a good route to choose. Typically, you will contribute a set amount to trading, and the trading firm will give you additional buying power, especially after you demonstrate your prowess. But the competition is fierce, and many prop firms have shut down in recent years. The opportunities are just not as good in prop trading as they once were.
A list of proprietary trading firms can be found here: https://www.traderslog.com/proprietarytradingfirms
“We’ll Fund You” Trading
In recent years, a new business model has moved into the trading space. I call it the “we’ll fund you” model, because that is what it basically is. Wannabe traders pay to audition for a trading position. For a few hundred dollars, prospects are given the opportunity to showcase their trading skills in a simulated environment. This audition is usually called a “combine.”
The combine is a challenging test, with strict rules for risk management, profit levels and drawdown limits. Most entrants fail again and again, which generates nice revenue for the firm. Entrants who pass the test are usually given more tests, and eventually a select few are given access to capital, with a profit sharing split for any future trading profits.
While this model is enticing for those with little or no capital, it is difficult to succeed as a trader in this niche. Some firms in this space include TopSteptrader.com and Earn2Trade.com.
Commodity Trading Advisor - CTA
Many good algo traders eventually want to run their own show, and trade other people’s capital. In the regulated futures world, this means becoming a Commodity Trading Advisor, or CTA. With this model, you’d trade client accounts full time, keeping a 1-2% management fee and 15-20% of the profits for yourself.
If you can show a successful real money track record, you should have no trouble attracting clients. If you had $1,000,000 in assets under management, with a 20% annual return, you could generate around $60,000 in revenue, which would have to support you, any staff, and outside services such as auditing and accounting. That is a pretty small amount of money, so most professionals agree that the CTA model does not become truly viable until you have $5-10 million under management.
When you start managing other people’s money, the dynamics of trading certainly change. Drawdowns that might not matter to you matter a lot to your clients. Marty Schwartz, a great trader and CTA, described in his book Pitbull how clients were complaining to him while he was in the hospital, even though they knew he was deathly ill! It can be an unforgiving and ruthless business to operate.
Plus, clients are not the only outside worry of a CTA. Government regulators are going to be knocking on your door, too. To be a CTA, you need to be registered and regularly audited. That gives assurance to clients that you will not disappear with or mishandle their money. You need to view the regulation and oversight for the good it brings to the industry. Information on becoming a CTA can be found here:
https://www.nfa.futures.org/registration-membership/who-has-to-register/cta.html.
One big drawback to becoming a CTA, besides the headaches of complaining clients and burdensome regulators, is that instead of trading, you will find most of your time being spent on marketing and sales. The world will beat a path to the door of a good trader, but you have to let them know you are open for business. So, in trying to make trading – what you really love – a successful business, you ironically may find yourself trading very little.
Professional Funds
Of course, the “big time” for a full time algo trader would be a position at a top trading firm. You have to be smart, dedicated and usually experienced to get a job at one of these firms. Right now, PhDs in math, statistics and data science are in high demand, as trading moves out of the hands of individuals, and into the black boxes of computer code. Algo traders are really becoming the industry’s dominant force.
Of all the full time forex algo trading possibilities, this is undoubtedly the toughest one, especially if you do not have a contact on the inside to help you. Your best bet may be to research a few firms, find out what their traders possess as far as experience and skills, and then emulate them. It is a tough road, though.
One trader I know took a unique approach that might help you break in at a professional firm. He worked at a small Commodity Trading Advisor, and built a nice track record over the course of a few years. Eventually, he approached a big trading firm, using his documented track record to procure funding for his trading. It is sort of like the trading audition process described earlier, except on a large scale, and with real money.
Wrapping Up
The failure statistics and anecdotes tell us algo trading is hard. Trading forex full time is even harder. It takes skills, desire and a passion for the markets. If you possess all that, there are different roads you can choose, depending on where you want this career to lead. But it can be done. The dream of every part time algo trader can indeed become a full time trading reality.
That is the life of a full time forex algo trader, you think. Or is it just a dream?
While many people imagine trading as a small piece in a glorious, carefree lifestyle, the reality is a lot different. Are you cut out for one of the hardest professions around? And if so, what are some different ways you can be a full time trader? This article answers both of those questions. To be clear, I am focusing primarily on algorithmic or algo trading here, but many of the points also apply to other types of popular trading, such as discretionary or chart trading.
Is Forex Algo Trading Even For You?
To succeed in any endeavor you really need two things: desire and talent. True success is enjoying what you do for a living, whether you are a trader, a plumber, a firefighter or a business person. You have to really want to be in the profession you are in. That will help you get better, to increase your knowledge, and to eventually become tops in your field.
Of course, having desire is not enough. You must have the talent, too. I wanted to be a pro football player when I was a child. The desire was certainly there. Unfortunately, the talent in my skinny, uncoordinated body was not there. Truly, you’ll never get far without talent and aptitude.
So, how does this apply to trading, and algo trading in particular? Well, first off you have to have the desire to be a trader. Do you have a burning passion to trade? Can you handle working alone much of the time? Trading is ultimately a solitary “you against the market” existence, and that is difficult for many. Can you remain optimistic in the face of trading drawdowns? Most people cannot thrive under these conditions. That’s something to keep in mind as you look to trade.
The second requirement is having the talent to trade, along with the required skills. If you are just out of school, chances are you never traded, so this is a big unknown. But for others, years of part time trading and programming strategies usually precedes full time trading. In fact, the dream of most part time traders is to become a full time trader.
If you are in that camp, have you been successful at part time trading? Ideally, you want to have 2-5 years of consistently profitable trading on a part time basis to even consider being a full time trader. Do you not only love to program and test new algo trading strategies, but also do you have the skills to do so? If you don’t have all that, how do you know you will even be a successful full time trader?
Full Time Algo Trading Options
At this point, let’s assume you are confident in your desire to trade, and you are convinced that your part time success is a happy precursor to full time trading wealth and enjoyment. What is the best way to be a trader full time? Here are some of the most popular options.
Algo Trading, In Your Pajamas
When most people think of full time trading, they picture the beach or pajamas I described earlier. Certainly that can be true – as a full time trader I have awoken in the middle of the night and traded in pajamas before. But it is not as easy (or fun!) as it sounds.
To be a private full time algo trader, you first need a substantial amount of trading capital. The exact amount depends on the person, but let’s assume you want to earn $150,000 pretax from trading. To do that, without taking unnecessary risks, cannot easily be done (if at all) starting with a $5,000 account. Sure, some snake oil educators and trading room operators out there will tell you that it is easy. However, the reality is small accounts are more likely to get wiped out long before they have a chance to achieve huge returns.
So, let’s say you earn a very respectful 30% per year trading, with acceptable risk. That means you need a $500,000 account to generate the kind of income you desire. It also assumes that you do not add to your trading capital, which you of course might want to do. All things considered, generating a full time income is no easy task.
As a full time pajama trader, though, you can always supplement your trading by ancillary activities, such as selling trading signals. Zulutrade.com is a site where clients subscribe to signals you provide, and if your trading is good, many people will flock to join. Another route, one that I have taken personally, is to sell expertise via books, workshops, and other trading educational materials. While not exactly trading, your trading knowledge and experience can help smooth your income fluctuations when the inevitable trading drawdowns occur.
Prop Trading
If you are starting out with limited trading capital, a proprietary trading firm might be a good route to choose. Typically, you will contribute a set amount to trading, and the trading firm will give you additional buying power, especially after you demonstrate your prowess. But the competition is fierce, and many prop firms have shut down in recent years. The opportunities are just not as good in prop trading as they once were.
A list of proprietary trading firms can be found here: https://www.traderslog.com/proprietarytradingfirms
“We’ll Fund You” Trading
In recent years, a new business model has moved into the trading space. I call it the “we’ll fund you” model, because that is what it basically is. Wannabe traders pay to audition for a trading position. For a few hundred dollars, prospects are given the opportunity to showcase their trading skills in a simulated environment. This audition is usually called a “combine.”
The combine is a challenging test, with strict rules for risk management, profit levels and drawdown limits. Most entrants fail again and again, which generates nice revenue for the firm. Entrants who pass the test are usually given more tests, and eventually a select few are given access to capital, with a profit sharing split for any future trading profits.
While this model is enticing for those with little or no capital, it is difficult to succeed as a trader in this niche. Some firms in this space include TopSteptrader.com and Earn2Trade.com.
Commodity Trading Advisor - CTA
Many good algo traders eventually want to run their own show, and trade other people’s capital. In the regulated futures world, this means becoming a Commodity Trading Advisor, or CTA. With this model, you’d trade client accounts full time, keeping a 1-2% management fee and 15-20% of the profits for yourself.
If you can show a successful real money track record, you should have no trouble attracting clients. If you had $1,000,000 in assets under management, with a 20% annual return, you could generate around $60,000 in revenue, which would have to support you, any staff, and outside services such as auditing and accounting. That is a pretty small amount of money, so most professionals agree that the CTA model does not become truly viable until you have $5-10 million under management.
When you start managing other people’s money, the dynamics of trading certainly change. Drawdowns that might not matter to you matter a lot to your clients. Marty Schwartz, a great trader and CTA, described in his book Pitbull how clients were complaining to him while he was in the hospital, even though they knew he was deathly ill! It can be an unforgiving and ruthless business to operate.
Plus, clients are not the only outside worry of a CTA. Government regulators are going to be knocking on your door, too. To be a CTA, you need to be registered and regularly audited. That gives assurance to clients that you will not disappear with or mishandle their money. You need to view the regulation and oversight for the good it brings to the industry. Information on becoming a CTA can be found here:
https://www.nfa.futures.org/registration-membership/who-has-to-register/cta.html.
One big drawback to becoming a CTA, besides the headaches of complaining clients and burdensome regulators, is that instead of trading, you will find most of your time being spent on marketing and sales. The world will beat a path to the door of a good trader, but you have to let them know you are open for business. So, in trying to make trading – what you really love – a successful business, you ironically may find yourself trading very little.
Professional Funds
Of course, the “big time” for a full time algo trader would be a position at a top trading firm. You have to be smart, dedicated and usually experienced to get a job at one of these firms. Right now, PhDs in math, statistics and data science are in high demand, as trading moves out of the hands of individuals, and into the black boxes of computer code. Algo traders are really becoming the industry’s dominant force.
Of all the full time forex algo trading possibilities, this is undoubtedly the toughest one, especially if you do not have a contact on the inside to help you. Your best bet may be to research a few firms, find out what their traders possess as far as experience and skills, and then emulate them. It is a tough road, though.
One trader I know took a unique approach that might help you break in at a professional firm. He worked at a small Commodity Trading Advisor, and built a nice track record over the course of a few years. Eventually, he approached a big trading firm, using his documented track record to procure funding for his trading. It is sort of like the trading audition process described earlier, except on a large scale, and with real money.
Wrapping Up
The failure statistics and anecdotes tell us algo trading is hard. Trading forex full time is even harder. It takes skills, desire and a passion for the markets. If you possess all that, there are different roads you can choose, depending on where you want this career to lead. But it can be done. The dream of every part time algo trader can indeed become a full time trading reality.
About The Author: Kevin Davey is an award winning private futures, forex and commodities trader. He has been trading for over 25 years.Three consecutive years, Kevin achieved over 100% annual returns in a real time, real money, year long trading contest, finishing in first or second place each of those years.
Kevin is the author of the highly acclaimed book "Building Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading" (Wiley 2014). Kevin provides a wealth of trading information at his website: http://www.kjtradingsystems.com
Copyright, Kevin Davey and KJ Trading Systems. All Rights Reserved. Reprint of above article is permitted, as long as the About The Author information is included.
Kevin is the author of the highly acclaimed book "Building Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading" (Wiley 2014). Kevin provides a wealth of trading information at his website: http://www.kjtradingsystems.com
Copyright, Kevin Davey and KJ Trading Systems. All Rights Reserved. Reprint of above article is permitted, as long as the About The Author information is included.