Why do most successful retail traders (the legit ones) become trainers? A thread on scaling up.
A friend of mine went from 10k to 17L in a span of 8 months with no capital addition, very controlled risk management too. Definitely took high risks here and there, but the risk was always defined. That's what? Close to 170x right?
But can he do another 170x from 17L to 28 crores in 8 months? Nope. Why? Lot of factors come into picture. There's only so much you can trade without slippage, liquidity, etc., eating into costs.
He bought index/stock options to go from 10k to 2L. From 2L, he used stock futures to go to 10L. From 10L to 17L, he's gone since march beginning using Futures - index and stocks. Almost always uses 2-3x leverage intraday MIS, and uses BO/CO.
Is this performance possible in next 8 months to go to 28 crores from here? No. Why? There's not enough liquidity in futures as well as options to trade and go to that level within 8 months. It's not impossible, but definitely not possible without taking highly outsized risks.
What would be realistic? Manu went from 30L to 1.3 cr to 5 cr in 2 years. That's possible. Mitesh did the same. The reason for returns slowing down as you scale up is that the liquidity is thin in Indian market that you either have to manage multiple positions at the same time
or you will have significant size that will move the market. PRS said he had most of the OI in a particular strike once in his option writing. Mitesh said he had about 5% OI in a particular position he was holding. At 4-5 cr level itself, you get to that place.
Plus, as your capital increases, no of lots increases, your slippage also increases, your order will get executed as different orders as there won't be enough liquidity at each price point that your big lot orders will get executed in chunks.
This brings us to another thing. As traders scale up, the number of decisions they have to take go up. You can't make meaningful returns intraday and it also gets exhausting beyond a particular level - so almost all successful traders slowly move to positional/swing trading.
This is because intraday trading attracts a lot of parting with your profits in terms of % of profits as commission to your broker. Add to that if you're using a fuck-all broker like Zerodha at that crores of capital, you're gonna get hurt one day or the other.
The commissions, the slippage, the taxes you pay, etc start eating into your returns. Earlier if you were making 3000 points per year (with about 300 trades) and 10 points per trade on average, at this 1-digit crores level, say you lose 4pts slippage roundtrip, your % returns
reduces, and you make lesser returns now. The only way to scale up is to trade more and more instruments, which gets exhausting and difficult beyond a point. Traders can diversify into crude, gold, commodities, etc., but how much can you trade and monitor at the same time?
Few successful traders take the prop route, band together with other traders, start a small prop firm with 50-60 crores or so, trade together in different uncorrelated instruments to diversify risk.
Many legit successful traders slowly go from intraday to positional to full on swing, to eventually holding positions for weeks/months, and also get into investing in companies. Beyond 10-20 crores, many of these traders don't see a point in being glued to their system 24x7.
Some of them take the automation route, hire developers, automate their strategies and spend a bulk of their time monitoring their strategies and researching new strategies.
Some give up trading altogether to spend time with their family and keep the wealth and become full time investors - spending their time traveling, investing in stocks/companies, and slowly compounding their wealth. Some are happy to compound at 15% pa.
And when you have 20-30 crores, compounding at 15% pa gives you a decent sum to lead your life happily. It's certainly not easy - easier said. But they have the acumen for that.
The traders who get to 5-10 crore level, and even 25 crores, who then lose the drive for trading every day (which most do, as you get older, once you have seen enough wealth accumulated), you want to spend your time in meaningful things, and some take up teaching/training.
Many of these successful traders prefer to mentor 3-4 people personally, over few many months, than conduct workshops. But some do conduct workshops which give you so much value for the money invested - in a day or two. But they are also realistic in setting expectations.
Finding such people is rare though. Once people accumulate enough fuck you money, they just say fuck you to society and don't care about keeping up with the joneses. This is the case with most. 1% of this 1% feel like they are just getting started and get more ambitious.
These people usually go into investing for themselves for few years, and then start PMS/AIF and some do well, some don't and drown in regulatory bullshit and poor client relationships before they give up.
1% of the 1% of this 1% of successful traders are those who actually scale up to multiple millions. Very very rare. So, at a retail trader level, there's sort of a glass ceiling around 5-10 crores. And these guys who get there, have taken significant risk getting there.
Some just lose the hunger for compounding aggressively beyond a point coz they want to preserve the wealth they have accumulated and can't afford to take outsized risks given that they have family, kids, etc.
Those who do workshops/train - can honestly do without charging anything (some successful traders tried). It just attracts a lot of freeloaders, non-serious people that for these successful traders, it's just not a good value for their time.
According to them, they are charging a nominal fee for their time, and to make sure you're serious too. And it's risk free money, in some people's perspective. Which teacher makes 1-2 crores per annum (unless he's a top prof from ISB)? So, it's kinda lucrative & risk-free.
Some don't do any of this - they make 20-30 crores, beyond that point, they just trade for the fun aspect, beyond which it's a game of keeping scores for them, and they have secured their future with some safe investments, and continue to trade as they wish.
Some just stop trading altogether, put it all in passive income sources, trading very occasionally small capital size, and enjoy their life and time with family/kids traveling, pursuing any artistic interests they have, or an alternate career - starting up something or other.
Some become angel investors, join angel network and invest in promising startups - these are usually extroverts who like to do something new and who got tired of the lonely aspect of trading and wanted something social.
These are various paths that a successful retail trader can take. Very few retail traders beyond a particular level attach themselves to an institutional setup and trade bigger size and go bigger. That's also because of the ambition aspect. Beyond 100 crores tops,
any extra money is not going to fetch you extra meaning/happiness/sense of fulfillment in life unless you have dreams like @elonmusk. To such people, money is only a number, a tool for greater good for effecting social change.
Those who say that successful traders will keep on scaling and teach for free and all - aren't aware of actual realities behind scaling up. So much goes behind scaling up that so many successful traders hit the glass ceiling and stay at the same level for many years albeit gladly
And I know some who took 3-4 people under their wing and mentored them personally, for free, one or two of whom have gone onto become successful traders themselves. Such people are there, but usually freeloaders and greedy entitled people take advantage of them and teach them to
mend their ways and not entertain freeloaders. Most remain anonymous, some come out in the open to help people, bring awareness, etc., charge a nominal fees, provide so much value in their posts/workshops, etc., but then, there's not much audience for such legit traders who speak
the truth, and who tell you that trading is very hard, and it's not for a common middle class person without much savings, and that it's a hard profession to be in, and that the field leaves a trail of bodies, lot of people blowing up, etc. If someone tells all this, people avoid
such a person who has seen the best and worst of that world and has come out successful. But if someone posts alluring screenshots of lakhs of profit everyday, people just flock that person like flies over rotten eggs.
No, this isn't a "grapes is sour" post. This is just the reality. Anyone thinking it's easy is going to find out the hard way. And the people thinking successful retail traders will only keep on scaling are also highly mistaken.
I learnt about this scaling aspect few days back from a legit trader on twitter, and also couple of my friends who have dealt with the scaling aspect confirmed the same. Hence sharing it here.
And no, this doesn't apply to traders who are not profitable and conduct workshops/training/webinars for a good risk-free money to make side income (sometimes the main income).
