Making Your Trading Capital Work For You!
As most traders will tell you, there's no such thing as a set amount of trading capital when you start trading although it should be mentioned, the more you have to start off with, the easier it's going to be.
While some may disagree, brokerage is not something one should overlook. Remember, most brokers charge a flat rate, irrespective of the size of your fund.
The advantage of a large fund becomes apparent when we for example take two traders, each using the same broker and each facing the same fees. While one trader has 00 to trade with, the other has ,000. If they are both being charged a fee of 0 per trade, the trader with 00 would need to make at least 10% in order to break even. The trader with K on the other hand, would only need to make 1% in order to break even.
Of course you can still start trading if you only have a small float but you do need to realize that you'll be at a slight disadvantage.
Yet another factor determined by float size, is the stock trading system you choose to use.
If you're starting out with a relatively small fund then I'd advise you to look at a long term trading system rather than a short term system like day-trading. Of course, while there are many reasons for me saying this, the most important benefit is that a long term system can be managed with great success even while you continue working in your regular job. As you gain experience and become more confident, then yes, start experimenting with a short term system.
For someone with little experience, going and investing a huge sum of money into trading is simply being reckless. Admittedly, the more you invest, the bigger your windfall will be if you win but remember, if you loose, you'll be loosing a large sum of money. The reason I mention this, is because many people like to plan ahead by saving a large amount of cash before they start trading for the first time. Likewise, there are those who get swept up in anticipation and end up maxing out their credit cards, which really is something you should avoid. Once you've got the necessary experience, you can always apply for a bank loan instead.
As Don Miller mentions in Trading Markets World Meets the Traders, new traders should focus on good trading rather than making money and for this reason, funding your trading with credit cards is a bad idea. Why? Because you'll end up spending most of your time worrying about the repayments and far too little time worry about good trading. In fact, unless you have enough money set aside, you shouldn't even consider giving up your regular job and when I say "enough money", I mean it should be enough to support you for at least two years.
Part-time trading is ideally the way to go for beginners because it won't place excessive strain on your finances and apart from that, you'll have the peace of mind knowing you still have a steady income while you're learning the ropes.
Short and long-term trading systems:
Short-term systems where trades are typically from one to thirty days require a great amount of expertise and experience, not to mention the fact that they're extremely time consuming as well. In this case, traders seek to accomplish a high number of wins by taking part in more trades.
Long-term system ‚ In this case trades are at least a month or more. Of course this means fewer trades and less wins but then again, you don't require as much capital and you don't require as much skill.
Essentially, the amount of money you have available will determine how much capital you start with. Of course, the tools you choose to use and the amount of risk you're willing to take will also have an impact on how much capital you choose to start with. As I've mentioned earlier, there's no "ideal amount" to but instead, decide how much you're starting out with and then keep it aside as an individual business.
While there isn't an "ideal amount", I recommend you have at least K set aside as a trading capital. Don't forget, this is also a real business so it should be treated as such.
Tags: trading, trading capital, trading system