Trying to Become a Full-Time Trader?

Astronaut, professor, truck driver, doctor, rock star. Typical career aspirations for regular folk, right? But you’re not regular folk. You’re a trader. And maybe trading is still your “after-hours” gig while you make most of your living with a title like “manager” or “analyst” or “technician.” The question becomes: Should you stop being a worker and start being a trader? 

Let’s face it. The economy isn’t what it once was. And most people aren’t spending 50 years at the same company anymore. Yes, you may exchange your shorter-term job at some point. But you’ll probably still trade. So, while you may have various jobs over the years, your trading life will likely be a constant. 

Fantasy vs. Reality

As a title, “full-time trader” may not be exactly what it sounds like. If you think you need to be glued to a trading screen to consider yourself legit, think again. By checking quotes a few times throughout the trading day on a TD Ameritrade mobile app, plus keeping an eye out for bigger news events like Fed announcements or earnings calls, you can stay on top of the market. Fully engaged. 

Becoming a full-time trader doesn’t mean you have to quit your job. In fact, many jobs are flexible enough that you may be able to turn break time into trading time. You may be getting insurance, experience, and decent income from some corporate gig. Why give that up if you don’t have to? 

Now, before you grab that “promotion” to full time, you do need to earn it. And that involves checking three boxes before you may feel you’ve got the confidence. 

Consider Your Trading History

A full-time trader who uses options on a regular basis is probably comfortable with a wide variety of strategies—from covered calls to verticals, iron condors, and calendar spreads—and knows that different market environments indicate different strategies: bullish, bearish, neutral, short-term, long-term, high-volatility, low-volatility, and so on. Full-time traders typically aren’t one-trick ponies. 

Your trading history will show you the types of trades you’ve made (see figure 1).

1. Head to the Monitor page on the thinkorswim® platform. 

2. Select the Account Statement tab. The Spread column in the Trade History section can be sorted by the type of spread. 

Full-time traders who are trading options for a living have likely traded many order and spread types. Sure, a single strategy can potentially make money over time as long as stocks continue to move in the same direction. But if that’s your only strategy, you may not have sufficient tools when a stock’s price direction changes. A rounded full-time trader has many different arrows in the quiver no matter what the market presents.

Also, think about which trades made or lost money. Are the numbers consistent, or do one or two stick out as big winners or losers that dominate your account? For full-time traders, performance is predictable to some degree. Naturally, you can’t predict the market or your future profit and loss. But you can potentially gauge profits and losses relevant to different strategies. That’s called “trade and risk management.” And it’s what full-time traders do—as a matter of course.

Consider the Historical Period You’ve Traded

From early 2009 right through the end of 2021, the S&P 500® (SPX), Nasdaq-100® (NDX), and Russell 2000® (RUT) indexes all had major rallies while volatility (vol) levels were mostly relatively low. Certainly, there were weeks or months when the market dropped significantly (most notably following the initial spread of COVID-19). But generally, it was a bull market. Now, if you were among those who had primarily bullish positions during that extended stretch and were making money, bravo. But did you really know what it’s like to trade in a bear market like the one 2022 has thus far delivered? How about choppy markets that scare you out of positions, only to reverse themselves? And how prepared are you for, say, a market that doesn’t move for a month, a quarter, or a year?

The last nine months have been a trying—and eye-opening—time for many would-be full-time traders who gained their initial trading experience during the warmer market years and who found themselves unprepared for a change in climate. Some have even scaled back or ended their trading efforts altogether. In contrast, people who truly call themselves full-time traders have lived, and traded through, wildly different types of scenarios. They know how to adjust to what the market presents. They protect positions. They cut losses. In other words, full-time traders adapt their strategies to high or low vol, or when they think directional strategies might work better than market neutral, or vice versa.

If this year represents your first exposure to a market with high vol that stays high, or if you hadn’t previously seen big swings in your profit and loss that might be too much for your account or your psyche to handle, these types of market fluctuations can teach valuable lessons in risk management. They have the potential to train your instinct better than anything you’ll read about in a book.

In fact, full-time traders never brag about their risk. They know from experience that a lot of risk can spell doom if the market and vol move in ways they don’t expect. And often, the market and vol frequently move in ways we don’t expect.

Take an honest look at a chart of the SPX and the VIX, for example, for the period you’ve been trading. Have these indexes been docile? Or have you survived their big moves? Rest assured, full-time traders have their own unique war stories.

Look Hard at Your Net Liq

Your account’s net liquidating value (net liq in trader lingo) is the value of your positions, plus any cash. It’s the amount of money you’ll use as a trader to generate profits. After all, trading is a business. And your net liq will be how you support that business. 

Any net trading profits after commissions can be divided by that net liq to determine a rate of return. Imagine you’ve had a profitable year and made 20% trading returns after commissions. What’s 20% of your net liq? If your net liq is $5,000, that’s $1,000 profits after commissions. If your net liq is $200,000, that 20% return would be $40,000 in profit. How does that $1,000 or $40,000 (or whatever the number is) fit in to your finances? Does it cover living expenses, or just a few bills?

Keep two primary trading rules in mind. One, just because you made money in one year doesn’t mean you’ll make it in the next. Two, a higher potential return generally comes with more risk.

So, your net liq has to be big enough to keep you trading after a losing year (yup, trade and risk management). And you have to be realistic about what your potential profits might be, if or when you make them.

If you need to get 100% returns every year to keep the lights on, you’re going to have to take on significant risk. Full-time traders must have realistic trading goals and a solid understanding that they may make or lose money in any given year, or even have a string of losers.

A smaller net liq, and smaller returns that might only cover designer coffee, does not mean you can’t consider yourself a trader. In this case, while your day job may cover most living expenses, as a trader with serious intention, you’re still building valuable market experience that lets you check boxes one and two. As long as you’re engaged with the market and have a solid reason for trading the way you do, you can still call yourself a trader—even a full-time trader—although your profits might not be as large as the income from your “job.” Hey, as long as your net liq is growing even a little, it counts. 

Bottom line? The hallmark of devoted traders is attitude. When you’re able to talk about a stock or the market, and you know exactly what strategy you’d use; or when you have consistent profits across different markets over extended periods; or when you can honestly say that your net liq is more important than your ego, and you can make the right decision even when your heart disagrees, then you can proudly call yourself a full-time trader.