Ask Colin

How much risk capital do you think I need to trade my own account full time?

If you are going to trade your own account full time, then you have to work out what annual income you need to generate to live off your trading. Subtract any other income streams you will have in addition to trading.

From your experience to date you should know the annual rate of return that you can achieve from trading. If you don't have such a track record, use 5% for the first three years and pray you make that.

Then it is a simple calculation. Assuming that you can make 15% pa from trading (an excellent return), and you need $100,000 before tax to live the way you want to, you need to have 100,000 divided by .15 or $667,000.

Bear in mind that this is not allowing anything for capital growth to maintain your purchasing power. If you assume inflation at 4%, the above calculation would be 100,000 divided by (.15 - .04) or $909,000.

Just plug in your own numbers and you will have the capital you need.