Do you want to be a full time trader | stockbee


Do you want to be a full time trader

As a full time trader for 14 years , I often get questions from new traders about becoming full time trader. Here are some frequent questions :

Do you need a LLC for full time trading

My answer is no.

You need profitable setup, risk management , and sufficient capital to become full time trader.

LLC is just a pass through entity for trading .

You do not have unlike conventional business liability in your trading business.

So don't worry too much about setting up  LLC if you want to be full time trader.

To become full time trader you need sufficient capitalisation level , that is most important consideration. If you do not have sufficient capital LLC or no LLC you are not likely to survive very long . Under capitalised traders are under tremendous pressure to generate returns , which leads to they taking higher risk and that leads to demise of many traders. The more capital you have the better it is to become full time trader. 

Should I get trader status to trade full time

The taxes for traders are taxed as ordinary gains if you are doing short term trading.

Getting trader status is not much help unless you plan on having losses, which anyway should not be any traders objective.​

Unless you have very high volume of trading and has been doing it for many years and have substantial cost associated with your trading , I do not see trader status helping.

I am not tax consultant but that is my opinion. I have traded fulltime for 14 years and traded profitably every year, besides that my trading costs are very low so I do not see too many benefits to  going for trader status. Plus it is difficult , complicated , and costly process to get the status.

Do not worry too much about these things. These are least important things to become full time and profitable trader. See my answer above , most important thing is sound and profitable method and sufficient capitalisation to survive winters in trading .

How can I get money to trade

Many traders have small capital base and that creates pressure on them to actively trade and on small base even if you make good profit it still a struggle. So I often get question as to how to get more trading capital.

While there are no easy answers to this question. Some options are:

  1. prop trading firms . for a % of your profit prop firms give you access to their trading capital. For someone who is day trading and has good track record of few years this can be excellent option. Once you prove yourself you can get access to large sums of money with very little skin in the game. But this means being full time trader and in most cases trading in firm's office.
  2. Family and friends . If you have profitable track record your family and friend know about it. They can see it . They are your best source of capital.
  3. Selling assets like second home, or business
  4. home equity (which I am not recommending unless you have very good track record and can manage losses.
  5. Date or marry rich millionaire or find sugar daddy or sugar mother !!!!!
If you do not have enough capital think long and hard before attempting full time trading . I often get questions like I have 50k and I want to trade full time and make 10k per month, while it is possible the probability of you being able to do that are extremely low. There are too many trading gurus promising you that but it is unlikely to be true and you being able to replicate it is going to be extremely difficult so don't get carried away and become full time trader with 50k. 

Can I deduct cost of my trading tools

Best option is to ask a tax consultant.

But as a general rule as ordinary investor you can not deduct those costs unless you itemized your deductions.

Even if you itemized deductions there is a catch:

The IRS  considers investment expenses a miscellaneous expense and limits it to 2% of gross income.

So if your gross income is 100k then 2% of that is 2000. Let us say your trading expense is 200 dollars per month. (2400 per year) You can only deduct 2400-2000=400 dollar out of 2400.

So don't assume you can deduct all your expenses. As your profit grows your taxable income grows so the 2% limit also grows. So if you have say 400k taxable income 2% of that will be 8k. So if your expense of trading is less than 8k you can not deduct it.

That is why keep your trading expense very low. My trading expense is less than .25% of capital traded. It is miniscule expense in larger scheme of things for me because I trade a style that does not require expensive data sources and 5000 a year trading services.

Becoming full time trader is not for everyone. Either you need extremely high level of skills or you need sufficient capital base and extremely high self efficacy beliefs to make it work. If you have that then you can make millions. 

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