Recently, I met a distant relative of the same age as mine, in a family function. We caught up after several years so we discussed about our career/professional journeys. When he knew I was an investment advisor and invest in stock markets, he was curious to know more.
He was quite interested in knowing if he could use trading to earn extra income from stock markets? And his interest was fueled by a lot of posts floating on various social media that showed how one can generate an additional regular income by trading.
I told him frankly that while you will regularly hear stories of people telling you how their one stock pick doubled or they made money in stocks, you will never hear anyone talk about losses in stock markets. And that is natural human tendency. People discuss their wins and hide their failures.
Also, nowadays it is very easy to be influenced by financial influencers and feel that stock market is a place to make easy money. But that is not true at all, let me tell this at the start.
In fact the regular SEBI recently came out with a detailed report on how only 11% of traders made money in derivatives markets.
So coming back to the question my relative asked – is it possible to make extra money by trading, the answer is yes it is definitely possible. But the caveat is that it isn’t as easy as it seems first.
The very first step would sound boring but it still is to correctly learn the skills required for doing trading in the markets. This is like trying to learn how to use your axe before you go to cut a tree. You need to know how to hold the axe, at what angle to use the iron blade of the axe, which trees to choose, and similar thing. I hope you get the drift.
You really need to first gather some theoretical knowledge and learn how to use the technical tools that are required for trading, whether it is trading in stock markets via traditional or discount brokers or whether it is trading in currency or forex markets in top rated in forex entities, or whether it is commodity trading in precious metals like gold and silver, which too has many of its dedicated followers.
Once this part is done, only then you should consider setting aside a small amount of money to begin apply what you learnt to real trading.
How much money can I earn from trading?
This is what my relative asked.
And there is no one right answer to this even though this is often a question asked by many people who want to start trading seriously. But your earnings will depend on factors like –
- How much capital are you start with in the markets?
- What is your risk appetite and how much risk you can take in your trading bets?
- Trading expertise and knowledge of technical indicators. More importantly how you use your skills
- Patience & Emotional control
And please be reminded that if you plan to base your trading journey on tips and recommendations of others, then you will never make money from trading. If you are serious, then you need to learn it the hard way and then run your own trading strategies.
Do not rely on random trading tips. You will eventually only end up losing your money.
While the prospect of earning extra side income from trading does seem inviting, the fact is that it requires knowledge, effort, emotional control, maturity to accept when you are wrong and cut your trades, and most importantly, a lot of patience. If you are missing on any of these, then you will find it very difficult to earn a regular income from the stock market trading.
And these are the most common factors why most beginners lose money heavily when they get into trading. In fact, even the seasoned traders find it tough to consistently generate regular returns and earn extra income from day one.
Whether you decide to trade or not and then whether to trade derivatives or stocks depends on a lot of factors. If you are looking to generate inflating-beating returns, then investing regularly via SIP in equity funds is enough. But if you want to consider trading to generate extra income, then weigh all factors we discussed in this article before deciding what you do.
Doing something extra on the side to earn some extra money is still a good thing – if you have time and intent to do so. The extra money you get can be used to help manage extra expenses occasionally, provide more surplus for your regular savings, etc. And if trading is what you have chosen to generate extra income, then be reminded that trading is not simple. No doubt it can be profitable. But its not that easy. Many people can join the market, but your success depends on you. The type of trading you choose can determine if it becomes a full-time job, a part-time job, or just a way to make extra money.
The idea of extra income is a powerful one. The legendary billionaire investor Warren Buffett once rightly said that ‘Never depend on a single source of income’. And he was damn right.
Disclaimer – The views expressed above should not be considered professional investment advice or advertisement or otherwise. The article is for general educational purposes only. The readers are requested to take into consideration all the risk factors including their financial condition, suitability to risk-return profile and the likes and take professional investment advice before taking any financial decisions or actions which may have financial implications now or in future.