How much Capital to start

Discussions about Money Management and Risk Control.
Jeff Richards
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How much Capital to start

Post by Jeff Richards » Sat Apr 26, 2003 1:34 am

I am a green pea trader so if this question reveals my ignorance please for give me.

Specifically I would like to know how much capital is required to start to speculate and still practice money management? For instance, If a trader was starting out and his money management rules stated that he could only invest say 2% of his capital on any one trade that would be $100.00. Seems to me it could take a long time to build an account that way. Would it be better to wait and save for a larger account or would someone with little to start out with have to take bigger risks from the start?

I have a million questions so i'll just drop them one at a time.

Thanks

Jeff

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Post by dctag » Sat Apr 26, 2003 1:59 am

Personally I think that if your account is small that you can open up your risk parameters a bit. Of course doing this increases the chance of blowing up. When I say a bit though I mean a bit not a lot. I think if you are using 2% you could open it up to 4%-5%. On the other hand there is nothing wrong wth taking it slow and safe. Compounded returns do a lot to an account. The first couple years might seem like a waste but then one day you will look at your account and realize how big it actually has grown. One thing that would prove useful (for trading stocks anyways) would be to use a broker with per share based commisions that way you could do optimize your position sizing as well as % risk. Of course every extra penny that you can add to your account would be helpful.
Last edited by dctag on Sat Jan 21, 2012 11:09 pm, edited 1 time in total.

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size of the account / position size

Post by edward kim » Sat Apr 26, 2003 4:28 am

Hi Jeff,

I had an interesting conversation today about how to apply the turtle trading system to a smaller account. I told him that longer-term trend following systems require more room to let the trade go through than a short term system. So to solve your problem, use a smaller stop and a smaller time frame.

For example,

long term-system - 1% intial position risk - use daily data
short 1 e-mini gold at 330, trail stop at 340
dollar risk is $33.2 * 10 = $332.00
account size needed = $332.00 / (1%) = $33,200.00

short-term system - 1% intial position risk - use tick data
short 1 e-mini gold at 330, trail stop at 330.50
dollar risk is $33.2 * .5 = $16.60
account size needed = $16.60 / (1%) = $1,660.00

I personally think it's important to have the correct account size for the correct system. Most take a long-term system and apply it to a short-term sized account, which means using a larger size than normal (in my view, anything above 2-3% is getting on top of the curve.)

A 25% systematic inital position risk on a $1,000 account just as likely to blow up as a 25% systematic inital position risk on a $1,000,000 account. Of course, short-term systems require you to be in front of the screen a little more than longer-term systems; if you have a full-time job other than trading, you will definitely have some problems with the short-term stuff.
Last edited by edward kim on Sun Apr 27, 2003 5:32 am, edited 1 time in total.

rs

Post by rs » Sat Apr 26, 2003 4:47 am

Hi all,

I am not sure where you are all from but in the UK where I am, there is a special type of financial services company called spreadbetters. They allow you to trade a position at a much smaller level than the actual contracts or even the mini contracts if they exist.

For example, a 10 year bund contract in Europe has a 10 Euro per tick value. If you take out a spread bet you can trade at a level of 1 Euro CENT per tick. Also, any gains are free of tax. The downside is that the spreads are much wider than the underlying market, sometimes 3 to 4 times wider. However, if you don't have a lot of money and wish to start trading in a long term style it is an excellent place to start without having to increase your risk per trade to an uncomfortable level.

I hope this is useful for someone!

Thanks

rs

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Post by Kiwi » Sat Apr 26, 2003 5:29 am

Also, there is no commission, just the higher spread, which for a small bet size can be a pretty good deal. But, they are only tax free in the UK.

Also I think that the 1c per point is finspreads (tell me if someone else is offering it please) and although their advertising says 1c per point the small print says that this runs out after 8 weeks. Only accounts opened some time ago get to retain the 1c bet. After 8 weeks its US1$ or GBP1 per point.

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Post by Kiwi » Sat Apr 26, 2003 5:30 am

Oops sorry.

With finspreads after 8 weeks it is US$1 per point or GBP0.50 per point.

Most others are GBP1.00 per point.

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Post by Jeff Richards » Sat Apr 26, 2003 11:10 am

Thank Everyone!

This is great!!!!!!!!! These are just the sort of answers I was hoping to get when I signed up for this forum. What an awsome tool. Keep them comming!!

Best,

Jeff

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Small Capitalization Issues

Post by drm7 » Sat Apr 26, 2003 9:42 pm

Jeff,

I definitely feel your pain with regard to low trading capital. I posted a long rambling message about this on the testing forum.

One other specific alternative is a Forex dealer called OANDA (I don't have any commercial ties to them) www.oanda.com. At OANDA, you trade only foreign exchange, but you have a 1 dollar trade minimum and you only pay the bid/offer spread. This means that a small trader can trade those wide long-term stops, because the contract sizes aren't high like they are with futures. (Most currency futures are minimum $100,000USD value) There are two drawbacks:

1) It is hard to get price data for system testing (you can use futures to approximate, but there is a difference due to the forward nature of the futures contract (forex is a "spot market".))
2) You are limited to currencies, so the number of non-correlated markets are limited.

Stocks are also good for small accounts, but they tend to be correlated at the wrong times!

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Post by enigma » Wed Apr 30, 2003 9:16 am

Hi guys,

Could someone recommend some good websites for spreadbetting in the UK? Thanks.

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Post by Kiwi » Wed Apr 30, 2003 7:04 pm

www.finspreads.com for the smallest bet size at present and easy to use interface.

www.deal4free.com for lower spreads and even better software.


When I was reviewing them (about 4 weeks ago) the others seemed much the same but often with higher spreads.

John

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UK Spread Betting Firms

Post by Joe » Wed Apr 30, 2003 7:04 pm

Hi Enigma,

Have a look at -

www.finspreads.com
www.cityindex.co.uk
www.cantorindex.co.uk
www.igindex.co.uk
www.deal4free.com

Finspreads will allow for stakes down to one pence per point, and online stops down to 50 pence per point.

I hope this helps.

Joe
Last edited by Joe on Wed Apr 08, 2009 12:51 pm, edited 1 time in total.

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Post by djb » Wed Apr 30, 2003 9:20 pm

G'Day,
Its worth noting for Australian residents, that both deal4free and IG Index are here.You can open an account in Aussie Dollars and all gains are tax free in this country :D

You can trade on 10% margin with minimun lot of 1 share on dealforfree.

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Post by Kiwi » Wed Apr 30, 2003 11:22 pm

djb,

Are you happy with the range of services available from them - I've never figured out the difference between cfds which ausy d43 offers and spreadbets on the same stocks? Do you get the same bet on the european and US indexes that they offer in the UK?

These are serious questions if you know the answers.

I think your tax office may have a different opinion by June :cry:

John

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Post by djb » Thu May 01, 2003 2:13 am

Kiwi,
Well with IG index, you can trade (bet on) the basically the lot. e.g all asia pacific stocks, USA stocks (NYSE,NSADAQ), UK and major EU stocks.Pratically all major commodities contracts,grains,energy,metals,financials,indicies etc,you can even buy/write options on the above.So I think its the same offerings as in the UK.

Dealforfree only do the stocks and currencies here in Aus at the moment.
The main difference between CFD's (contracts for difference) and SB (spreadbets) is that CFD's are quoted using the same bid/ask as the 'real underlying instrument',with a commision percentage added.The only real difference from that and using a broker is that you dont ever actually trade the physical stock or futures contact.A derviative of a derivative if you like .

With spreadbets, they quote their own bid/ask prices that are
1.Based on the underlying but wider.
2.Change spread with maket volitility
3.They are in effect the market maker on every trade.

Just to complicate matters, D4F dont charge commision on their CFD offerings, they just widen the bid/ask spread quoted on the underlying instrument.They are in effect just spreadbets with a new name.All the others IG, Cityindex etc charge commisions on CFD's.

Basically, they are there to make money, not be your friend and they can do funky things with their quotes, but it really only effects those trying to daytrade these things.I only trade on a longer time frame and its a lot easier with a smaller account to use these guys.

Rgds,
Dave

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Post by enigma » Thu May 01, 2003 3:48 am

Thanks alot for the recommendations guys ... will check them out soon.

Jester

startup capital

Post by Jester » Mon Jun 23, 2003 3:10 pm

My advice is to sell most of your earthly belongings for cash. Find the highest paying job (that's legal) you can and save every penny you make. While working at this job, study and program in all of your spare time. Then after a year or two after you've saved a bunch of money (hopefully 100K+), begin trading. If you blow up go back to square one and start over, eventually you'll get there. You need large inventory in this business, and our inventory is money.
Jester
:P

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Post by MCT » Wed Jun 25, 2003 12:01 pm

Savings, savings, savings. ...or borrow from the bank, family memeber etc. Understand the risk each one entails.
Last edited by MCT on Wed Sep 17, 2003 6:47 pm, edited 2 times in total.

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Post by Jason Czech » Wed Jun 25, 2003 1:34 pm

It's my opinion (Though not based on experience, I'm also starting with a rather small account) that you're better off starting out with what you have, and sticking with the markets that are tradeable with a small account. Interactive Brokers seems to be a pretty good choice for small accounts because they have the lowest commissions (that I've seen) on stocks. I'd prefer to be able to participate in the futures market as well, but it isn't really an option until the account grows. The general opinion seems to be that you are going to make mistakes as a beginner, and it's better to make those mistakes when the absolute loss is relatively small. Makes sense to me.

A more daring option (the one a friend of mine has taken, with success so far..) would be to get a bank loan or a bunch of credit cards & use that for your trading money. I certainly don't advocate this approach, as it could ruin your life if things go badly, but it is an option....

Good Luck,
Jason

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Post by damian » Wed Jun 25, 2003 8:18 pm

Jason Czech wrote:....get a bank loan or a bunch of credit cards & use that for your trading money ........ it could ruin your life if things go badly
Indeed.

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CFD's

Post by SL » Sun Feb 15, 2004 11:37 pm

Guys,

This is an area I have been looking at recently.

The market has to be made for CFD's that is not very liquid and apparently I have heard that some in Australia are not to impressed with the way some of these outfits operate. I don't want to draw any parallels to 'bucket shops' but there it is.

That said the people doing the complaining appear to be short term traders. These CFD outfits start to play little games when they end up on the wrong side of a popular trading systems that work. They see the orders coming in and don't want to take the otherside because they will loose.

Trading a longer term account is probably the way to go with CFD's and it appears that you can gain exposure to all manner of markets. For the small trader this could be just the ticket.

I would be interested in whether these rumours have any solid basis and on how to plug CFD's into a system like turtle. At the moment it would appear that you would require data of the underlying instruments to use in systemised trading process.

Still one can't be too quick to judge as this is early days for CFD's. The question is how do we use these instruments with systems designed primarily for futures?

Cheers,

Stephen

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