Thursday, 20 May 2010

Number Crunching

A couple of days ago, I posted some numbers that I had calculated last July, showing the daily average that one would need to make on the exchanges to earn the equivalent of the UK median and mean incomes.

Anonymous very kindly pointed out that my figures assumed a higher tax rate than is actually correct, so in the interest of accuracy, I am revising them to reflect the current tax and National Insurance rates for anyone earning this amount.

The median UK full-time gross income as of 2008 is £25,123.

The net is £19,259.07 which works out at £52.76 a day.

If you choose to trade just 5 days a week, then you would need to make £74.07 per work-day but I suspect that most full-timers actually work for at least part of most days.

Even as a part-timer, there are very few days in a year (24 on average) when I have no activity on my Betfair account, although the time spent might vary from a few minutes to several hours. Two days off a month doesn't sound like much, but trading is something I enjoy and to quote Harvey MacKay “Find something you love to do and you'll never have to work a day in your life”.

To achieve the mean full-time gross income of £31,323, you would need to make £64.66 a day (or £90.53 per day for a five-day week).

Unfortunately for those who are looking for (close to) the same steady profit each day, trading is not like that, at least it's not for me. I have a definite 'season' when I make the majority of my profit - October through March accounts for a lopsided 76%. The Spring and Summer months are a relative struggle, and I suspect that most traders have their better seasons too. The two worst months are April and May, and June and July aren't too much better.

If only I could seriously get into trading tennis or golf but finding value in those sports really is work, at least it is for me.

In 2006, golf was my top summer sport, (followed in order by baseball, cricket and tennis), but by 2009 golf had dropped to last, with the top three in order being baseball, cricket and tennis. Evidence that what works well one year doesn't necessarily work so well the next. Evolve or go extinct I guess.


Anonymous said...

Evidence if it were ever needed that you are not a trader but just a punter and one that can't seem to prove that they are profitable.

Matt said...

..but you continue to read don't you, so it just doesn't matter?

Aren't punters and traders the same thing? :) It's all gambling.

Anonymous said...

"Unfortunately for those who are looking for (close to) the same steady profit each day, trading is not like that, at least it's not for me."

I'd suspect most traders do have a steady income with the only season lapses being where the sports they're trading give few opportunities.

Your comments about finding value in tennis or golf suggests you're gambling. For most traders value makes no difference as we're looking the direction a market is likely to move. You could argue we're backing at a value price and selling at poor value price but we all know markets don't solely move on the basis of value so plenty of times we'll buy at poor value and sell at even worse value to nick a profit.

If you can spot value long term, and handle the expected losing spells, gamble otherwise learn your market's quirks/expected swings etc and trade.

Matt said...

Each trade is just a small version of the usual "gamble" that everyone normally uses the term to describe.

As a trader, you gamble that the implied odds of a price movement are better value than the actual probability of it getting there.

As with any gamble, there are good and bad examples. Just as there are good examples of both short price implied odds and long price implied trades.

All of which are determined by the points at which you would cut, or take profit - goalposts that can move and can often be difficult to quantify in value terms.

It's not beyond the realms then to see, that some traders do take losses regularly, depending on the sort of trade they like going for... an example could be where a traders cutting price is when the match is lost (a perfectly valid choice if that is how you want to set up your option, 0% is afterall, a certainty in this game).

I just think the view that all traders are one tick penny pinchers doesn't apply to everyone. Sure, there's probably a lot of those, because generally, people tend to chose trading after being bitten by too much variance to handle. But there are many people out there who take substantial risks when trading, myself included, who regularly "do their money". :) It's worth it though.

Anonymous said...

[Not the usual anonymous contributor]

Just a note on the debate on replacing a salary with income from trading/gambling/whatever.

As well as salary, employment often gives extra benefits such as employers pension contributions, sickness benefit, ma/paternity allowances and possibly others.

If you need £X to cover what you would otherwise obtain from salary, you will need £X+Y to cover all of the benefits of employment (The values of X and Y varying according to circumstance of course.) Something to check before giving up the day job.