Making Your Trading Capital Work For You!
As most traders will tell you, there’s no such thing as a set amount of 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.
Because most brokers charge a set fee, those starting out with a large fund will find the fee easier to pay. For those with a limited budget, brokerage is something you need to look at closely.
To make this a little clearer, let’s take an example where two traders wish to open a trade, using the same broker who charges a fee of $100 per trade. Trader number one has a fund of $1000 while trader number two has a fund of $10,000. In this case, the trader with $1000 will need to make a win of 10% just to break even while the trader with $10,000 only needs 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.
Furthermore, the type of trade system you choose will also be heavily influenced by the size of your float.
There are numerous reasons as to why I recommend long term trading systems to those with a small fund. Not only will you be able to manage your trading system successfully while continuing with your regular job, but the amount of brokerage you’ll face will also be considerably less than if you got involved in a short term system such as day-trading.
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.
Trading on a part-time basis is by far the best approach to take if you’re a beginner because you’ll be in a position where you’ll earn some money while gaining experience at the same time.
Short-term trading systems 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 systems involves trades of a month or longer, hence the need for fewer trades. While this means less wins, it also means you require less capital and it’s all round a better system for those who lack trading experience.
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 $10K set aside as a trading capital. Don’t forget, this is also a real business so it should be treated as such.
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