December 23, 2009
Making Your Trading Capital Work For You!
Because there are certain fixed costs involved with trading, the more you have to begin with, the easier things will be for you. However, you can start with any amount of capital you choose as there’s no ideal figure to go on.
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.
Let’s just say for example, there are two traders who want to enter a trade. One has $1000 in their fund while the other has $10,000. If these two traders both choose the same broker and that broker charges $100 per trade, the trader with $10,000 will only need to make 1% in order to break even after paying the broker fee. The other trader however, has to make 10% in order to cover the broker fee.
Essentially, all I’m saying is that those who start out with a small fund are at a slight disadvantage.
Yet another factor determined by float size, is the 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.
I know that many people start saving money before they actually start trading and of course there’s nothing wrong with planning ahead. On the other hand, there are those who max out their credit cards in order to start trading and for the most part, I certainly don’t advise this course of action. Sure, if you’ve got the necessary trading experience then yes, you can loan money from the bank, just as many others do in order to start a regular business. Remember though, the more money you invest, the bigger the results will be. Win and you win big, but if you loose, you’ll also loose big. The best advice I can give, would be that you start out slowly rather than risking your life savings only to loose everything.
Of course it goes without saying that your focus should be on your trading, without the added burden of debt from credit cards. Max out your credit cards for the sake of trading and you can be rest assured that you biggest concern will be the card repayments, rather that good trading. In Don Miller’s “Trading Markets World Meet the Traders”, he sums it up nicely by advising new traders to focus on good trading rather than making money. Furthermore, it’s generally accepted that unless you have enough money to live off for at least two years, you shouldn’t consider trading as a full-time business.
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.
The differences between short-term trading and long-term trading:
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 $10K set aside as a trading capital. Don’t forget, this is also a real business so it should be treated as such.
Learn About The Stock Trading Systems You Dream About! Learn how by visiting www.trading-secrets-revealed.com.
Filed under Finance by
