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Make the Most Out of Your Trading Capital

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By : Jimmy Cox    99 or more times read
Submitted 0000-00-00 00:00:00
There is no ideal quantity of trading capital to begin trading with, it's no secret that the higher the trading capital you start with, the easier trading becomes because of the fixed costs associated with trading. The major one to be aware of is brokerage. Depending on which broker you go for, many brokers charge a flat fee and it's the traders with the larger fund size and trading capital who have it a little bit easier.

For example: two traders are looking at opening a trade; the first trader's position is valued at $1,000 and the second's is at $10,000. Assume both traders have identical brokerage costs at $100 per trade. The trader with the larger account size has the advantage because our first trader (who's trading $1,000) would have to make back 10% before she would even reach break even. Trader two, however, only needs to increase her capital by 1% before she reaches break even.

There's nothing stopping you starting out trading with a smaller trading float; however, those who do start with a smaller trading float are slightly disadvantaged. Your trading float size is going to determine what type of system you're going to trade, too.

If you're looking at trading very short term systems such as day-trading systems, they're best suited to larger trading sizes. I recommend that when you first begin trading that you look at trading a longer term trading system. There are many reasons for this, one of the most obvious being that you can easily manage a very successful long-term trading system while still working full time. Once you've tasted a little success, you might look at shortening your time frame and focusing more time on trading itself. Also, with a longer term system, you'll be incurring a lot less brokerage.

Maybe you've been planning to trade for a while and you've amassed a wad of money. That's good planning. Or, maybe you're planning on borrowing it. Maxing out your credit cards is probably not the best way to get started in the trading business. If you're a bit more experienced, borrowing from the bank (like you would when starting any small business) is fine. But remember: the more money you have to invest, the more your results will be magnified. If you win big, you will win really big. If you lose big, the same applies. It's best to get a little experience behind you before you go and start spending the volume of money you would on, say, an investment property.

Worrying about trading profits is hard enough without having to worry about debt service on your credit card as well. In this case, you're not concerned with good trading, you're focused on making payments. Don Miller talks about this in Trading Markets World Meet the Traders when he tells new traders to worry about trading well, not making money.

Quitting your day gig to day trade is a bad idea unless you've got a pile of money to keep you afloat with no worries for at least two years. A fantastic way to learn is to begin trading on a part-time basis. That way you've still got an income stream while you're honing your skills. The advantage here is that you're not trading your rent money.

Attributes of short and long-term trading systems:
Short Term: trade length of 1-30 days, more trades, higher number of wins, main trading objective is income, time consuming, requires high degree of skill and more capital
Longer Term: trade length of 1month+, fewer trades, less wins, main objective is capital growth, less time needed, lower skill level and less capital required

In summary, how much capital you start with will depend on how much money you've got, your level of risk tolerance, the instruments you're looking to trade, and what time frame of system you're planning to trade. There is no perfect amount of capital to begin trading with. The key is to simply define how much trade capital you will invest and have it set up as a separate business. That way you're not drawing on the profits all the time and losing your focus.
Author Resource:- Trading Money Management Tactics To Tame The Markets And Prosper
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