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Trading Capital - How much is enough?

  • #1
  • First Post: Aug 15, 2010 7:40pm Aug 15, 2010 7:40pm
when can i tell that i have the right capital to trade , is 10k $ enough as an initial capital , or 50k $ ??

why is capital important , isnt risking 1% on trade is the same for 1k and 100k accounts , its the same percent .

I am so confused with undercapitalised issue , because i am seeing it as a percentage ?

any clues
  • #2
  • Aug 15, 2010 8:20pm Aug 15, 2010 8:20pm
"when can i tell that i have the right capital to trade"


When your expectations and abilities align.
  • #3
  • Aug 15, 2010 9:03pm Aug 15, 2010 9:03pm
Quoting seawinde
why is capital important , isnt risking 1% on trade is the same for 1k and 100k accounts , its the same percent .
Capital is mostly important if you intend to make a living out of trading.
Also, it doesn't change anything as to percentages, but it can allow more flexibility as to how you distribute the 1% risk, especially if your broker doesn't allow position sizes smaller than micro-lots.

But as the poster above said, your expectations should firstly align with your abilities. As soon as your trading results show a long term consistency, you'll know if it's time to increase the capital or not.
  • #4
  • Aug 15, 2010 9:04pm Aug 15, 2010 9:04pm
It depends on where and how trading will fit into your life. If you deposit a thousand dollars into Oanda tomorrow, then go quit your job expecting to 'make a living' at trading, you'd be undercapitalized in 99.9% of the cases. If you have some great informational advantage, you'd still be a moron to give up your health insurance and the security of a sure paycheck, but you could in theory be just fine after a while. If you think you can accomplish the same thing trading PA, or some common Barnes and Noble method, well then, you're headed for a royal headache.

Now, say you buy into all the psychology hype and you have a personality that gives you some tiny edge. Maybe you studied economics in college and have a decent grasp on fundamentals, and you enter longer term trades around news times with decent stops. Instead of the $1K with Oanda, you have $100K on deposit with them. You could very well be in good shape in this sort of situation. If you had a very good feel for what you were doing, you'd probably be alright.

Say you're just an idiot and you have $100K in Oanda, refer to the first example. It's not going to end well.

So my main point is that a special relationship exists between which type of informational advantage you have and your starting balance. I'd say if you have a great information advantage, you need to start with at least enough capital to cover your costs of doing business and to get you profitable soon enough to prevent starvation and to keep the lights on, internet connection running, ect.. If you have a family, it will take you a little longer so as to do it responsibly. If you have no information advantage then you shouldn't trade regardless of your starting balance.
  • #5
  • Aug 15, 2010 9:27pm Aug 15, 2010 9:27pm
I'd advise you to start with at least $100k.

What time do you trade usually, anyways....?
"If The Fool persists in his Folly he will become wise." - William Blake
  • #6
  • Edited 10:38pm Aug 15, 2010 9:30pm | Edited 10:38pm
  •  Ideasmiths
  • | Joined Mar 2009 | Status: 一将功成万骨骷 Forex war! Win pips or die! | 30 Posts
Quoting seawinde
when can i tell that i have the right capital to trade , is 10k $ enough as an initial capital , or 50k $ ??

why is capital important , isnt risking 1% on trade is the same for 1k and 100k accounts , its the same percent .

I am so confused with undercapitalised issue , because i am seeing it as a percentage ?

any clues
I came to this understanding....and it is about one's absolute confidence and proper trader mindset.

Most people agrees that if a speculator (ie trader) put on a trade and if it is based on some reason, then it is a good trade. When the trade is run, if the trader is not influence by fear of lost or fear of lost of profit, then he or she will be able to execute the trade according to his plan. This means that there is no emotion attached to the amount of $ at risk in that trade.

So this can only comes about if that $1,000 comes with an actual backing of $50,000, $100,000 or $500,000. The amount depends on the individual trader 'confidence' that this $1000 will not matter based on his win/loss edge.

Another factor to the above is the proper trader mindset of which 'patience' is a key factor that many people agrees. So for a trader to be patience and build up a trading capital of lets say $100,000 so he can risk $1000 will earn that trader a right to the 'confidence'. During the process of building up the capital (see james16 thread), he will learn other key skills as a trader.

However, if trader only has $1000 in his pocket and he wants to 'pretend' that he has $100,000 as capital....even if he pretend he is risking 1%, subconsiously he will know the deceit and he will feel fear when the trade is on.

I got the above understanding after I read 'Reminiscences of a Stock Operator'.
  • #7
  • Aug 15, 2010 10:47pm Aug 15, 2010 10:47pm
There is no direct dollar answer to the question "trading capital - how much is enough".

You should work out a position limit based on your capital. Note, a position limit has nothing to do with how much capital you risk per trade.

e.g. in most retail scenarios at 100:1 leverage

1 mini = $10,000USD
1 lot = $100,000USD

If you are a retail trader with $50,000 starting capital, I would recommend max position limit of $10,000 per trade with 1-3% capital risk. That means you could take an absolute maximum of 5 positions at any given time risking between $500-$1500 per position.

In trading land, those who think they can play 100:1 leverage $10,000 forex lots with a $1000 account are generally referred to as retail suckers, and rightfully so. People seem to strongly advocate risk management without any idea of what it actually is. If you wish to trade a $10,000 contract, then starting an account with a quarter or half of that just because your broker provides leverage and expecting stop-loss to do your work for you is going to spell failure 9 out of 10 times.

Imagine you ignore this advice, and you are trading a $50,000 account using standard lots (i.e. controlling millions of dollars with a very very small relative starting capital). Imagine now there is a black swan type event against your position, and being a retail client your broker only offers 20% slippage in bad events. Now your million dollar contracts are worth $800,000 each, or a $200,000 loss on each contract, even though you were trading with only $50,000.

Do you see the difference between risk management and a % stoploss yet?

However much trading capital you have is always enough. Just limit your position sizes appropriately.
  • #8
  • Aug 17, 2010 3:55am Aug 17, 2010 3:55am
Quoting The Fool
I'd advise you to start with at least $100k.

What time do you trade usually, anyways....?
A question like this suggests to me that he's inexperienced, so I'd advise he start with as small an account as possible.

How much is enough? Keep the day job until it starts costing you money. It ranges from person to person, depending on factors such as living expenses, dependees, ability, and risk profile.

Quoting Sinner
Imagine now there is a black swan type event against your position, and being a retail client your broker only offers 20% slippage in bad events. Now your million dollar contracts are worth $800,000 each, or a $200,000 loss on each contract
I think you're being a little dramatic. If the eurusd was to drop 20%, my account will probably be the last thing on my mind. Instead, I'll be focused on getting my arse down to the bomb shelter.

It's also a bit silly to suggest 100:1 is too risky without consider context. Is it too risky for someone who trades the dailies? Sure. For a scalper? Probably not.

There's another issue - someone who has a day job won't bring the full brunt of their capital to their account. If someone has $500 in their account, and will deposit another $500 into their account in a week, their capital is actually $1000. Obviously we have to use some sense when considering future additions to capital, so we wouldn't consider the 1 million we may earn over our lifetime, and then count that as our trading capital!

Quote
However much trading capital you have is always enough. Just limit your position sizes appropriately

Not if you want to trade for a living.
  • #9
  • Aug 17, 2010 5:25am Aug 17, 2010 5:25am
got the point , thanks people , i am trading a 2000k account and and not expecting to make a living from it , but to be honest , i cant go very long term with that account.
  • #10
  • Aug 17, 2010 6:29am Aug 17, 2010 6:29am
Why?

Quoting seawinde
got the point , thanks people , i am trading a 2000k account and and not expecting to make a living from it , but to be honest , i cant go very long term with that account.
forget about tomorrow, just steal away into the night
  • #11
  • Aug 17, 2010 6:44am Aug 17, 2010 6:44am
i think it's bs to demo trade and be "sucessfull" there and then---->>> 100k live account, the better is i think is to try live FX with small account which you can lose without effects on your personal life for example micro account with Oanda and at first to only "play" with real money and when you get confident enough in your live trading you will just deposit more funds to your account...
  • #12
  • Aug 17, 2010 6:52am Aug 17, 2010 6:52am
depends if u really know how to trade then with 1:500 leverage u can trade with 100$
  • #13
  • Aug 17, 2010 11:57pm Aug 17, 2010 11:57pm
>>got the point , thanks people , i am trading a 2000k account and and not expecting to make a living from it , but to be honest , i cant go very long term with that account.<<


Did you mean to type a 2K account? I am not trying to nitpick, because I know fund managers who have struggled to reach that mark ($2 mil in funds). From my point of view, it is more than sufficient to go long term with that.
  • #14
  • Aug 18, 2010 7:39pm Aug 18, 2010 7:39pm
i am sorry , i am trading 2k $ account :s , i will add another 3k $ after 4 month if i found my trading skills advanced
  • #15
  • Aug 18, 2010 8:49pm Aug 18, 2010 8:49pm
The rule of thumb that we used when buying/investing/building businesses was that you needed:

1. Twice the capital you originally thought;
2. Twice the time you originally thought;

At the end of that you either had a business or you didn't.
  • #16
  • Nov 21, 2010 1:49am Nov 21, 2010 1:49am
A good friend of mine started trading fx with $5000.

He spent 2 years trading mini(micro?) lots. At the end of this period, having built consistent profitability in his trading, he moved to $1 pips for 2 or 3 months then $5 pips. He’s just started trading standard lots. The maximum risk per trade at $5 was 3%, DD was often 2%.

For the first 2.5 years he wasn’t generating an income (his wife supported them both), but once he got to $5 pips @ an av. of 400pips/wk he generated a $2000 income/wk.

He’s an example of the fact that even with a small starting capital, as long as you can negotiate the learning curve without losing your TC you can, after X amount of years, begin to generate a decent income. And with the power of compounding, can build a sizable trade account.

It’s quite amazing really. The key variable seems to be trader aptitude not account size.
  • #17
  • Nov 21, 2010 2:32am Nov 21, 2010 2:32am
Quoting PeterE
For the first 2.5 years he wasn’t generating an income (his wife supported them both), but once he got to $5 pips @ an av. of 400pips/wk he generated a $2000 income/wk.
What a fantastic wife he has. She must have had a lot of faith in him because that was a big ask.

He's been doubly blessed then. Profitable at trading and a great wife to boot. Somebody is smiling on him.
Nothing worth having is easy.
  • #18
  • Nov 21, 2010 3:39am Nov 21, 2010 3:39am
Quoting PeterE
For the first 2.5 years he wasn’t generating an income (his wife supported them both), but once he got to $5 pips @ an av. of 400pips/wk he generated a $2000 income/wk.
OMG I hear this so often on these forums: people averaging net hundreds of pips a week and they are still trading small. If I knew I could net hundreds of pips weekly week in week out I would max out the credit cards take out a second mortgage beg borrow steal whatever so I could trade larger and larger.

I just don't get it.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #19
  • Nov 21, 2010 7:42am Nov 21, 2010 7:42am
Quoting seawinde
why is capital important , isnt risking 1% on trade is the same for 1k and 100k accounts , its the same percent .
Yes it is the same percent, no doubt, but the psychology is different. With $100,000, you don't mind trading 1:10 leverage and taking home few 1000's every month, as that takes care of your expenses comfortably.

With $1000, you are tempted to use bigger leverage and lot size, coz small profits don't motivate you, and in many cases frustrate you.

It's Psychology.
  • #20
  • Nov 21, 2010 8:54am Nov 21, 2010 8:54am
Quoting The Fool
OMG I hear this so often on these forums: people averaging net hundreds of pips a week and they are still trading small. If I knew I could net hundreds of pips weekly week in week out I would max out the credit cards take out a second mortgage beg borrow steal whatever so I could trade larger and larger.

I just don't get it.

It's an emotional game and they are leaving their emotions at the door. You have to trade "your" system. You trade someone elses and you are begging for trouble.

No system is guaranteed to work 100%. More often than not the first time you put big money on it you lose. Either by your mistake or by an unscrupulous broker.

Trading small never hurt anyone, it's a true showing of patience in my opinion. If you lack patience the market will get you sooner or later in my experience, yours may differ.

FX is not a "get rich quick" scheme, the minute you treat it as such you might as well go to Vegas instead because at some point all you will be doing is gambling anyway.
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