Starting Capital for Trading
Many think you need to have money to make money.
However, how much starting capital is really required to live from trading?
With CFD’s you can start as low as $50 if you wanted to. So, let’s discuss different starting capital amounts.
With no money you can still trade on demo account. You can manage other people’s money, assuming you will convince them to trust you. Working in a proprietary firm or hedge fund is also an option. It’s always possible to learn trading, and saving / working to be able to open a trading account in the future.
With under $1,000 you have to perform ridiculous percentages in order to live from trading. It will take a very long time until you can live from trading, assuming you are profitable for 2-3 years. It’s better to trade with small amounts of money than with demo account I think, because you learn how to control your emotions. However, if you want to live from this amount it forces you to risk at least 70% of your money. So, I would consider it gambling for money reasons but good for practice reasons if you just risk the minimum lot sizes. Also you can’t even beat your costs. The use of a broker’s platform or connection to a data feed already can cost $70. That’s 7% drawdown each month. And commissions, sadly, are higher the less money you have. How else would the broker benefit from a $500/$1,000-guy?
You have the chance to risk reasonable amounts of money, say 20-50 Dollar per trade and can even get a better feeling for trading and the risks involved. Blow-up chances are still high as what you need to trade for a living is still a ridiculous high percentage amount. Let’s say you need $1,500 per month, a performance of 30-60% is needed. If you then have to withdraw profits at end of months/quartal you will have a hard time making any progress towards a higher income goal.
$5000 is the absolute minimum for starting a trading career in my opinion. The problem remains: if you don’t have the skills to be a consistently profitable trader you will most likely still blow up your account.
If you really are a consistent profitable trader with a profit factor over 1.5, you can eventually start to build up the account and live from it.
~ $50,000 – $100,000
You certainly have enough money to live from trading. The question is, are you already a consistently profitable trader? Or do you only think you are?
Risk per trade
Money problems don’t get solved by money. Money problems get solved by skill.
There’s no such thing as a golden rule to the question how much risk per trade. Not risking more than 1% is the golden rule, and I think you can go safe with that. But consider that even 1% can be too much risk if you don’t have the skills yet to perform well. To learn more about the right position size take my Risk Management Masterclass and play around with the Risk Simulator.
The money problem
When you want to live from trading it’s clear that you want to solve your money problem. Whatever the reason is that you want to start trading, trading is not an easy way out of the financial prison.
It will more likely increase your problem if you are not equipped with enough money (anything below $50,000) and if your sole focus is on the money instead of on the process you’re more doomed than blessed.
The skill development
Trading requires respect to the risks in the market, hard work, change in many of your beliefs, practice, learning, failing, relentlessness, toughness, condition, adaptation. If you have the skill to be consistently profitable that’s a very high value skill and every proprietary trading firm would love to have you on board! So, considering skill development over questioning yourself that you have to have a certain amount of money is the best thing, I think, any trader can do.
Trading is not for everyone. Starting capital is not really an excuse to not get started nor will it hinder you from making a living from trading. A consistently profitable trader is a high value person and if you can become one, I’m very sure money will follow.