How to start trading with only $10,000?

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Trading Leech
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How to start trading with only $10,000?

Post by Trading Leech » Mon Feb 20, 2012 2:26 pm

I suspect that within a year I will have accumulated $10,000 to trade with, but not much more than that. This is not much, but at least it will allow me to start an account with Interactive Brokers.

My question is: Can I really trade futures with this little money? It seems to me that I will have to take on ridiculous amounts of leverage to do that, since the futures contracts are so huge. Hell, even the so-called mini-contracts are huge.

Would you say I should stay out of regular futures trading? What other types of trading are more suited for traders with little capital? Is so-called spread trading in futures a good alternative? What about options?

Stocks are of course another alternative, since you usually don't need that much to buy shares of stock. The difference with stocks is that companies come and go, and one has to monitor thousands of stocks every day, and in the process re-invent the whole notion of what a "trading system" actually is. In futures, a system just acts on a handful of commodities and can be tested on many decades of history. In this way, stocks are different, and will require some different approaches.

Any ideas would be appreciated.

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Post by gunter » Mon Feb 20, 2012 2:53 pm

Personally, I would not try with $10k to trade future. You would not be able to get any decent risk control on a LTTF system. If you stick to fewer contracts (only the smallest of the minis), it might work but you lose the benefit of diversification.

The easiest route would be to apply a LTTF system to spot forex using OANDA. I say OANDA, because they allow position sizes of 1 currency unit. That means I can run a LTTF system with $100 if I so choose.

Regarding options - I have used options on equities on an account that size to place directional bets. However, I found that on the deep-in-the-money or the LEAPS, the initial spread on the option was pretty high and opening a position could lead to a 10% - 20% loss. I did not like suffering such a big loss just by opening a position, but there are several other strategies you can use.

Stock trading is feasible, but due to the number of stocks, I needed to implement several filters and then I'd only take trades until my buying power was exhausted. I applied a fairly simple filter using MarketSmith (IBD's more expensive option) and for this week 16 stocks were flagged. To me that is a very reasonable number to monitor.

Ultimately, I ended up trading stocks. I can adjust my risk pretty well, the volatility of the portfolio is mostly under control and the potential returns seem to be pretty good.

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Post by LeviF » Mon Feb 20, 2012 3:32 pm

For me, the attractiveness of the financial markets is the scalability. Theoretically you can earn the same return on basically any amount of capital. So say you have an outstanding 50% year. On $10,000,000, thats $5,000,000 - pretty good year by most folks standards. On $10,000, thats only $5,000. Trading is a lot of work to only make $5k on a 50% year. There are better things to do with small capital.

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Post by gunter » Mon Feb 20, 2012 3:58 pm

LeviF wrote:For me, the attractiveness of the financial markets is the scalability. Theoretically you can earn the same return on basically any amount of capital. So say you have an outstanding 50% year. On $10,000,000, thats $5,000,000 - pretty good year by most folks standards. On $10,000, thats only $5,000. Trading is a lot of work to only make $5k on a 50% year. There are better things to do with small capital.
Perhaps, but compound it for 20 years (probably at less than 50% though) and the amount becomes rather sizable. Another consideration is that on smaller accounts, adding money monthly can really cause the portfolio to grow. If you both save money and get decent returns, then the account will see very good growth. That is one way in which small capital can become large capital.

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Post by fab1usa1 » Mon Feb 20, 2012 4:35 pm

For me, even having a $100.000 account wasn't large enough to trade futures unless I accepted 2% risk per trade to be "in the game", and that still put me out of reach of the full-sized contracts. I was not able to sleep soundly with that amount of risk per trade. That's just me.

With $10,000 at IB (my broker also), you can trade S&P 500 stocks and commodity ETFs with success. I do.

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Re: How to start trading with only $10,000?

Post by mojojojo » Tue Feb 21, 2012 11:27 am

Trading Leech wrote:
Stocks are of course another alternative, since you usually don't need that much to buy shares of stock. The difference with stocks is that companies come and go, and one has to monitor thousands of stocks every day, and in the process re-invent the whole notion of what a "trading system" actually is. In futures, a system just acts on a handful of commodities and can be tested on many decades of history. In this way, stocks are different, and will require some different approaches.

Any ideas would be appreciated.
Instead of stocks, you can use ETFs instead. That way you don't have to worry about company specific risks.

Other than that, the only thing I can think of is FX trading as mentioned above.

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Post by babelproofreader » Tue Feb 21, 2012 7:15 pm

If you're able to open a financial spread betting account, you will be able to trade futures with a very small account, with minimal risk. Some example minimum bets from my spread betting account provider are:-

S&P 500 - $6.00 per point, spread 0.4
Gold - $0.70 per 0.1, spread 0.4
Silver - $2.00 per 0.5, spread 3 points
Copper - $0.70 per 0.05, spread 0.4
US Crude - $0.70 per 0.01, spread 0.04
Cotton - $1.00 per 0.01, spread 0.4
Sugar - $0.80 per 0.01, spread 0.08

as can be seen, you can take positions with extremely small position size risk.

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Post by ifyousayso » Wed Feb 22, 2012 2:54 pm

Spread betting? Sounds to me like a good way to run through 10k. Not legal in the US afaik, but in the UK the main outfits (IG Index, Capital Spreads, etc) are infamous for moving the market against high rollers to stop them out. Might as well just go to a casino.

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Re: How to start trading with only $10,000?

Post by stopsareforwimps » Wed Feb 22, 2012 5:59 pm

Trading Leech wrote:I suspect that within a year I will have accumulated $10,000 to trade with, but not much more than that.
It is easy to slip into the assumption that losing all your account equity is an unacceptable outcome.

I ran some simulations a while back that suggested that if:

1. You are young enough and have enough income earning capacity to rebuild a stake.

2. You only have a small stake right now.

3. You are psychologically resilient enough to start again.

4. You have a strategy with a positive expectation.

Then it can be rational to take a significant but measured risk of losing all your account equity.

Intuitively, this is the case because the cost in low returns due to years of investing conservatively may be worse than the risk that you have to go back to work and save up another stake.

A lot of successful traders have blown up before going on to bigger and better things. See "Market Wizards" for numerous examples.

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Post by daveineagan22581 » Wed Feb 22, 2012 10:40 pm

It would be easy enough to test out the question if $10,000 is enough with which to start trading. Your question can be answered by doing some simple testing. Use $10,000 as your starting test equity and run the system over multiple time frames using a few different parameters. The answer to your question will become crystal clear. This is the only way that I know of to build the confidence to push through the hard times, no matter how much money you start with.

And now for my opinion. $10K is scared money. Use it to buy some data, a testing platform, and a bunch of wine or whatever your vice is and do some real testing over the next several months and really work at putting a stake together; enough to give yourself a fighting chance. And in my opinion, that number is not less than $50K. You don't want to feel hopeless if your first several trades are losers and with ten grand that's exactly how you will feel.

Good luck.

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Post by rhc » Thu Feb 23, 2012 7:43 am


babelproofreader
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Post by babelproofreader » Thu Feb 23, 2012 9:02 am

Spread betting? Sounds to me like a good way to run through 10k. Not legal in the US afaik, but in the UK the main outfits (IG Index, Capital Spreads, etc) are infamous for moving the market against high rollers to stop them out. Might as well just go to a casino.
Can you provide an reference for your assertion of "moving the market?" It would seem to me to be unlikely that a single spread betting firm has that power. Perhaps you meant arbitrarily widening spreads to catch stops? If so, again can you provide a reference? And if this is a concern, there are several direct market access spread betting firms.

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Post by ifyousayso » Thu Feb 23, 2012 9:21 am

Sorry to be imprecise in the wording there. No, of course, they can't move the external market, but they do widen the spreads to catch the stops. Google IG Index and/or Capital Spreads for recent reviews. Would, in turn, be curious to know which direct access spread betting firms you'd recommend.

[quote="babelproofreader"][quote]Spread betting? Sounds to me like a good way to run through 10k. Not legal in the US afaik, but in the UK the main outfits (IG Index, Capital Spreads, etc) are infamous for moving the market against high rollers to stop them out. Might as well just go to a casino.[/quote]

Can you provide an reference for your assertion of "moving the market?" It would seem to me to be unlikely that a single spread betting firm has that power. Perhaps you meant arbitrarily widening spreads to catch stops? If so, again can you provide a reference? And if this is a concern, there are several direct market access spread betting firms.[/quote]

Trading Leech
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Post by Trading Leech » Thu Feb 23, 2012 1:45 pm

That's a great story! However, I'm still confused. He is saying that he started trading futures with $600. That means he must have had insanely ridiculous amounts of leverage on, making me suspect that the success was luck.

I'm probably wrong though. Why am I wrong? It's worth asking, because here I am, stressing about starting with "only" $10,000. Maybe I'm just too scared of leverage for no good reason :(

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Post by marriot » Thu Feb 23, 2012 2:26 pm

Time to time there are magic moments.
Tulips, railroads, airplane, telephones, internet...what would be the next?
The one from Leonardo was the perfect unusual time.
A never seen before low for a commodities.
I think this is the best you can ask from the life.
I have seen, but not profit from, telephone warrants going from 1.000 to 1 million in a few months.
I have seen and profit from internet euphoria.
Point is: it can happen, you can do your first million easy being there at the rigth time.
Then, admit yourself that it was luck and focus on a more rationale method, possibly, before give back all.

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Post by gunter » Thu Feb 23, 2012 4:12 pm

Hi Trading Leech,

Here is a blog of leonardo for you to peruse.

http://infiniteyieldforex.blogspot.com/

Again another impressive performance although probably 90 % of his gains came from silver. Luck does play a part, but remember he was bullish silver as it started moving up and held the position as long as possible. Perfect trend-following trade.

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Post by LeviF » Thu Feb 23, 2012 4:48 pm

gunter wrote:Hi Trading Leech,

Here is a blog of leonardo for you to peruse.

http://infiniteyieldforex.blogspot.com/

Again another impressive performance although probably 90 % of his gains came from silver. Luck does play a part, but remember he was bullish silver as it started moving up and held the position as long as possible. Perfect trend-following trade.
Probably more like 120% of his gains came from silver. -20% from fx.

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Post by gunter » Thu Feb 23, 2012 4:59 pm

LeviF wrote:
Probably more like 120% of his gains came from silver. -20% from fx.
Haha, agree completely. My fx account has really taken some big knock due to all the churn.

The last time it was possible to calculate this exactly was on the Sep 23, 2010 post. Doing some quick math it points to approximately 81% of the profit from the silver trade.

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Post by AFJ Garner » Fri Feb 24, 2012 6:15 am

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rhc
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Post by rhc » Fri Feb 24, 2012 8:04 am

Once again;
someone is providing a valuable service by continuing to validate the old saying, “A fool & his money are easily parted"
viewtopic.php?t=9350

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