How Often Should Traders Withdraw Profits from Their Trading Account?

The ultimate goal of any trader is to make money. Once you develop a strategy that has positive expectancy and profits start rolling in, how often should you withdraw those profits? Finding the right balance between withdrawing profits and leaving enough capital to grow or preserve your account is crucial.

Remember that any profits you generate you have to work for. Thinking of profits as “house money” is a bad habit that will lead to poor trading decisions. You put in years of learning to build the strategy, you put in the emotional work to remain disciplined in the trade, and are risking your hard earned capital to make that profit. To say “It’s house money, I don’t care if I lose it” is ridiculous.

When you have this mindset, no matter the size of the account, you should always be taking withdrawals.

Understanding Personal Financial Needs

Full Time Traders

Your personal financial needs will be the most important factor in how often you withdraw trading profits. If you are a full time trader using profits to fund your lifestyle, you need to have a complete view of your fixed and variable monthly expenses. In the variable expense category, make sure to account for any longer term investment strategies. Ensuring you are on track to hit those financial milestones is just as important as covering your cost of living.

Withdrawals should primarily align with these needs as a full time trader. It’s best to have a regular withdrawal schedule if this is the situation you are in to guarantee you have the funds available to meet all of your financial obligations without running the risk of a late payment. This could be a monthly cadence, more traditional bi-weekly cadence, or anything that ensures you have the funds available. The main point is to have a consistent schedule so there are no surprises when a bill comes due.

Part Time Traders

You are likely meeting your financial obligations via another income source like a career. Trading profits should still be withdrawn regularly but not with the intention to cover all of your bills. A good exercise is to pick the smallest fixed monthly expense you have and withdraw enough profit to cover that each month. Incrementally you work up the ladder of your expenses and start covering more and more with your trading profits. If there is a large purchase that you are saving towards, another great thing to do is to set aside monthly profits towards this goal.

In both instances the power of withdrawing profits regularly positively reinforces that your trading has real world implications. You are realizing your gains and putting them towards something that betters your life. Making the profit tangible will give you a new respect for properly managing your risk when trading. If you know a bad trading decision means you can’t contribute to your savings goal this month, you’ll likely think twice.

Risk Management

From a risk management perspective, regular profit withdrawal will ensure that you stick to your predetermined psychological risk tolerance. The danger of leaving profit in your account is the capacity for rule breaks and sizing up on trades that you shouldn’t be. If one of these rule break trades goes wrong, suddenly you end up with an outsized loss compared to your normal winners, massively skewing your risk reward.

An increasingly common practice is to take withdrawals of profits when you have a larger than average day or week. We’ve all been there, feeling more confident than we should be after a big day, and that can lead to bad things happening. A precautionary measure is to withdraw a bulk of your outsized profit, that way you have fully realized the gain and don’t risk giving it back on an over confident trade.

Account Growth

If you have a smaller account, it makes sense to find a balance between withdrawing profits and allowing your trading account to grow. You still want to be getting in the habit of regularly paying yourself, but might want to use a percentage split to grow at the same time. The exact split will depend on your account size goal, consistency in trading, and psychological tolerance for risk.

If you know that a larger account opens you up to making bad trading decisions, withdraw all of the profit, put some towards personal expenses and put some into a savings account that you actually name, “My Trading Account.” When you treat it this way, you are technically growing the account, but the money is not in the brokerage account and at risk. Once you work on your consistency and discipline the money can slowly be added to the brokerage account.

Setting Profit Targets

Establishing arbitrary profit targets as a newer trader is oftentimes counterproductive. This usually leads to forcing trades to hit a number even if the chart setup does not align with the trade getting to that number. This approach should be reserved for more advanced traders who have proven they can stick to their system and achieve profitability. Maybe they have a large purchase coming up and want to withdraw that exact amount once hit, sure. Newer traders will likely focus on the target number and not the chart setups which is detrimental to having a consistent strategy.

Don’t Forget About Taxes!

Can’t forget to pay the big man! Consider tax implications when deciding on profit withdrawal allocation. Always consult a professional accountant for personalized tax advice. As a day trader your gains will likely fall under short term capital gains tax code. A rule of thumb is that 30 percent should be put away into a separate savings account to cover the bill at the end of the year.

Conclusion

Determining how often you should withdraw profits from your trading account requires consideration of personal financial obligations, risk management, and account growth goals. The biggest takeaway is that you should be paying yourself regularly and materializing your trading profits. You’ve worked hard to produce them, and thus should use them accordingly. There is no one-size-fits-all approach, but please… pay yourself!