Description

My basic trading philosophy can be summed up by one simple quote:

"Trade the ticker, not the company" - Nate Michaud


Monday, January 27, 2014

Question: "How much money do I need to start trading?"

There are a couple factors that need to be taken into account when deciding how much money to start trading with. The first and most important, DO NOT RISK MORE THAN YOU CAN AFFORD TO LOSE!

The vast majority of traders will blow up their accounts once or twice before success. I am a firm believer that everyone should start by trading small (whatever "small" means to you) while they're first getting started, because you're going to make mistakes, and they are going to cost you. Six months into my trading career, I had to re-fund my account due to mistakes I made along the way. You don't want these early mistakes to wipe you out. Had I traded larger, I wouldn't have been able to re-fund my account, and I never would have had a chance to succeed once I'd gone through the growing pains.

One final factor to consider is your specific broker and your commission structure. Let's say your broker offers a rate of $4.95/trade. That means it will cost you roughly $10 total to buy and sell your position. You need to trade position sizes that will prevent commissions from cutting into your profit too badly. If you are trading $1000 positions, with this rate you would need a 1% gain just to break even. If you're trading only $200 positions, you will now need a 5% gain just to break even.

A combination of these factors should be taken into consideration when deciding how much money to trade with, but at the end of the day only YOU can decide your risk and if trading right now would make sense for you.

13 comments:

  1. Hey Tim, thank you for the information!

    I would like to ask, if there's minimum shares per order? If yes thus the minimum depends on the share price?

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  3. Hi Tim.

    I have been paper trading for a month or so now and I have noticed some struggles that a beginner account goes through which clashes with advice often given by "gurus".

    my question is.....

    I am going to start with $2000. But while paper trading I noticed that only using 5-10% of my $2000 capital doesnt get me anywhere due to such little buying power.

    I am aware of advice given such as "never trade with more than 10% of your account". While this is true for large account sizes....it seems a hopeless strategy for beginner accounts. so......I only see two options....

    1) trade with 50% of your capital or more in order to be able to profit from stocks priced between $1-5/share.

    OR

    2) use less than 50% of capital, BUT.....only trade stocks under $1 in order to maintain a good buying power.

    What is your opinion? I see no other option cuz waiting for whole dollar moves is like waiting for a miracle. most moves are like 20c/30c moves.

    Would really appreciate a reply. I am looking to start trading live at the start of 2015.

    Many thanks,

    A.Wade

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    1. Sorry for the late reply. You're right, 10-20% of a 2k account is pointless. To overcome commissions, regardless of account size, you're pretty much forced into taking AT LEAST a $1k position every trade. That's doesn't mean you have to RISK $1k, respect stop losses and you can still keep losses under control. All my opinion of course

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  4. Mr Atlantis Wade i have the situation has Tim replied to your question yet, if so would like to share with me. Thank you

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  5. Hey Tim, What about Market Data fees and trader platform fees?

    Those things can add up getting into the hundreds

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    1. Very good point, these can add up fast. There are some cheap/free options out there that lack some functionality though. But yes, the more you save up first, the better

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  6. Hi Tim, recently started out and decided to use £1k as a starter in penny stocking. I'd been following some of sykes videos and getting some good picks. only problem was i was trading with 30% and realized i was holding out too long on the trades to make a decent profit. It became obvious to me that I needed larger size so that I could capture the middle of the move. I've been losing at lot of money trying to score 50% gains just to make the trade worth while. I've decided to open some demo accounts to practice some strategies with larger stakes and see if I can get the gains without pushing so hard for the moves. this post pretty much clarified what i was thinking

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  7. Hi Tim, recently started out and decided to use £1k as a starter in penny stocking. I'd been following some of sykes videos and getting some good picks. only problem was i was trading with 30% and realized i was holding out too long on the trades to make a decent profit. It became obvious to me that I needed larger size so that I could capture the middle of the move. I've been losing at lot of money trying to score 50% gains just to make the trade worth while. I've decided to open some demo accounts to practice some strategies with larger stakes and see if I can get the gains without pushing so hard for the moves. this post pretty much clarified what i was thinking

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  8. Tim! Sometimes OTC stocks make big moves once or twice a year (or once in 2 years) I will get retired before they move. So do I have to compensate it with a long lists of stocks so I can find some moving stocks more often?

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