how much we need to do real trading…? :45:
Good question,
and I am sure it has been asked before…
This entirely depends on the purpose, I feel, of your ‘trading’, meaning, whether it
is meant to be a hobby, a business, an interest-accruing investment (the ‘buy and hold’ investor),
or other…
Here is my question back:
[B]how much minimum capital (would be) required for opening a business?[/B]
Imagine trying to open a high-street business (like a retail outlet or a cafe’) with…
500 Pounds/Dollars/Euros (etc.) … Of course you COULD, but… would you really?
To stay afloat (and not shut down within weeks/months) with that sort of starting capital,
you would have to assume that [B]from the very first day[/B] there would be a
[B]steady income and increasing stream of (buying) customers [/B]into your shop…
However, you could(!) be one of those shops that opens when there is a sudden
economic downturn, or a slowdown in the local job market: how could you survive
running a shop in that market environment with such a small investment capital?
If, however, you invested a larger sum, let us say, 5,000 or 50,000, you could not
only weather the quiet period (i.e. an extended ‘drawdown’) but also reinvest in,
for example, cheaper alternatives, by introducing an ‘at initial loss’ line of products
that would entice costumers in for their competitive price, and which would only
initially harm your budget but, in time, would more than make up for the lack of
sales of the previous, more expensive line of products…
This is just an example to say that quite often we do not think of ‘trading’ in the same
way as anyone serious about a business, where in fact we should really try to imagine
trading like opening a shop… If I were serious about my trading, I would try to raise
at least 5,000-10,000 Pounds, instead of trading with my barely-500 Pounds, so I put my
hand up and say that I have not properly capitalised… I may do so, one day, but I do not
have a means to raise capital for this venture at this period of my life.
If I did have a larger capital, I would exactly treat this like a ‘shop’, and get some proper
business management advice/education, and think of this much more in terms of an active
business…
So …what do YOU think, Fiona?
but someone told me that i can start with small amount which is $100. because i am still new in forex trading.
You could… But, consider this: you could go to a car-boot sale and load your car with $100 worth of objects (books, lamps, bric-a-brac, a couple of paintings, etc. …whatever), ready to sell that to the public: you may sell some or all of that, but essentially it may not even cover the cost of petrol for driving to the sale (let us call that the commission cost): would this be a serious business model for the long term?
Also, as the car-boot sales person you would be trading goods, but would this be a sustainable, profitable, cost-effective way of doing business? Would it be enough to earn you the tag of ‘trader’, in the same way as someone who traded goods professionally?
Again, making the link between financial trading and the real world helps, sometimes, setting realistic expectations of what it can provide for us.
I have so little invested in my trading account that, even though I trade, I would not go as far as calling myself a ‘trader’ in the proper sense, because it is not my profession, and I have not invested as much in capital as someone who intends to make that their income, for example.
What are your expectations from trading with a $100 capital?
Hi PMH 
That is a very good article and speaks clearly about the reality of small account trading. Almost everywhere the recommended risk exposure per trade is about 1% of capital. So for a 100USD account that is 1 dollar, or 10 pips, on one micro lot. This raises two major issues: how much am I looking to make and can I trade successfully with only a 10 pip max stop loss.
I thought this extract was pertinent:
“With an average five-pip profit and making 10 trades per day with a micro lot ($1,000), the trader will make $5 (estimated, and will depend on currency pair traded). This does not seem significant in monetary terms, but it is a 0.5% return on the $1,000 account in a single day. As the account grows the trader may be able to make a living off the account, but attempting to make a living off a small account will likely result in increased risks, excessive use of leverage and often large losses.”
And that is talking about a USD1000 account. Trading a USD100 account with tight stops pretty much eliminates the possibility of long term positioning and restricts a trader to short-term timeframes. But everyone knows that short TFs are far more irratic and irrational and far more likely to produce losses than longer TFs. In addition, it is far more tiring and psychologically frustrating to watch 5min or 15min charts for long periods in order to gain sufficient trades per day to make it worthwhile. There is perhaps nothing more soul-destroying that working all day to get a total of 20 pips profit only to lose half or all of it in a last few trades of the day!
Also, short term trading with 10 pip stops requires fast, accurate and precise entry levels in order to get the follow-through to make a profit. Timing is perhaps the hardest issue with short term trading.
I think the issue here really is not whether one can make a living from a USD100 account, but whether it gives sufficient flexibility to be able to even trade sensibly.
I completely agree… To some of us, as newbies, it is almost a matter of blind faith, and we ignore all the ‘negative advice’; however, a lot of that advice is there to protect us from using a trading platform like a slot machine, gambling our money away…
Everyone can dream of becoming a milionaire from their home computer,which is pretty harmless until they pour money into that dream without any guarantee that they will not lose it all - and, sometimes, they are losing money that they cannot afford to lose.
I partially blame popular culture and unscrupulous advertising, with films and documentaries perpetuating the culture of ‘zero to riches’ - the ‘Wolf of Wall Street’ stuff - which sucks so many people into forex/retail trading in the misplaced hope of making it big… There should be better education and more honesty about the hidden danger within these golden dreams, and brokers who advertise through imagery of expensive cars/boats etc. should be reported (in my view) to the advertising standards agency for misleading the public into irresponsible investmemt… That is not to say that it is not the people signing up for trading who are responsible for their losses (ultimately, they are), however there is too much encouragement given to.people to part with their money through financial products which a professional investor/trader would never dream of using, or to use such products in a way that is at the very opposite of what works to increase capital.
What do you think?
Absolutely, PMH, it is amazing how it is possible to trade FX on margin without any more qualification than proof of identity and a few answers concerning trader classification. Impatience, ineptitude, inexperience and overtrading will almost guarantee that a small account will lose. As equity diminishes so does confidence. This leads to tighter stops and premature profit-taking, a combination that destroys risk management principles and increases loss potential.
I think a new trader with a small account should be cautious and conservative with their trading almost to a point of embarrassment - afterall, even a 10c profit is better than a 2 dollar loss. I also think that even when trading miniscule amounts it is important to focus on profit management and equity building. For example, with a morning profit don’t risk more than 25% of that profit in the afternoon. With a weekly profit, don’t risk more than 25% of that on Friday, and with a profit towards the end of the month, don’t risk more than 25% in the last few days. There is nothing better than a slowly growing account to instill confidence and pleasure from trading
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Excellent post
I agree
double agree
Thanks guys,
I’ve been away for a while doing some things and thought to stop by and see what has been happening here. It is good to see so many of you long-termers still here helping others out!
I really dislike this rags-to-riches and porsche in a week reputation that seems to exude from forex environments and I don’t really think there are many newcomers who seriously believe they are going to be millionaires in a year.
But they do believe that there is no upper limit on expectations and possibilities and that is a good thing. But the shame of it is that so many fall by the wayside even though they are bright, willing and gasping to learn anything and everything that will help them reach a state of consistency. So what goes so wrong, so often, for so many? It is just so nice to see you guys trying genuinely to help people out with this…
Yes-he told you right because you are newbie and still in learning process and there is risk involved to loose your money. So always it is good suggestion to start with small amount if possible.
You can and it’s probably the most advisable way to go about things. Start with a demo account and after a few months if things have gone ok open up a small live account with $100. It’s good to get a feel for trading with real money even if it’s just a small amount. As others have mentioned you want to build up your consistency and a track record of doing things correctly. If you can achieve that then you can slowly build up your account balance via profit and also add additional funds over time to accelerate account growth. I’d recommend adding funds in small chunks so you keep comfortable with the amounts in play and slowly get used to trading with larger amounts.
One issue of a small account balance though is that it can be easy to slip into bad habits as the amounts involved are small and relatively replaceable. If you mess up and smash your account it’s easy enough to throw in a bit more cash and start over. I did this myself a few times when starting out and wasted the guts of a couple of years chasing unrealistic gains. Do your best to avoid this and keep being consistent with your plan. If starting out with $100 you have to be prepared to be in this for the long haul (5-10 years) and the sooner you can “get it” the sooner you’ll be on the right road.
Indeed, I agree, nice post, now it can help not only but all the traders that has same question.
excellent work pipmehappy, your really a big help for traders like me by sharing all you know about trading.
I guess starting with a minimum amount can be a good idea, it can also help in evaluating the broker you choose.
PMH , Thank you for the advise, maybe for this time, i should start on low amount so i can try first if my strategy would be effective.