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Trade Capital‚ How To Make The Most Of It!
By plrprousers | January 17, 2010
Money Management & My Trading Secrets
Contrary to what some may believe, there is no “perfect amount” to start your trading capital with although the more you have, the easier it is because there are some fixed costs involved with trading.
Because most brokers charge a set fee, those starting out with a large fund will find the fee easier to pay. For those with a limited budget, brokerage is something you need to look at closely.
Let’s just say for example, there are two traders who want to enter a trade. One has 00 in their fund while the other has ,000. If these two traders both choose the same broker and that broker charges 0 per trade, the trader with ,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.
Yes, you can start trading with a small fund but you just need to be aware of the fact that those with a larger fund tend to have the advantage.
Yet another factor determined by float size, is the stock 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.
Quitting your regular job for the sake of trading is really not advisable unless you have enough financial backing to support yourself for at least a couple of years. Likewise, it’s not advisable for you to accumulate debt for the sake of trading. If you do, you’ll spend most of your time worrying about repayments rather than having all your focus on proper trading. In fact, Don Miller also covers this in Trading Markets World Meets the Traders when he says the primary interest of new traders should be to trade properly, rather than aiming to make money.
Trading on a part-time basis is by far the best approach to take if you’re a beginner because you’ll be in a position where you’ll earn some money while gaining experience at the same time.
The differences between short-term trading and long-term trading:
Short-term systems involve trades of 1-30 days and they involve taking part in more trades. While the number of wins will be higher, short-term systems demand a lot of time as well as a high level of skill and expertise.
Long-term systems require considerably less skill that short-term systems. For the most part, those involved in a long-term system focus less on multiple trades and frequent wins, but more on capital growth instead.
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 K set aside as a trading capital. Don’t forget, this is also a real business so it should be treated as such.
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