It’s a common question.
You’re looking at getting into trading or spreadbetting the financial markets, but you don’t have a huge amount to play with. So how much is enough? What’s the minimum you can realistically start trading with?
The brokers will tell you that you can open a Spreadbet account with £100. Whereas many traditional stock brokers will expect you to have at least £5000 to open a trading account.
So for beginners with low capital, Spreadbetting is often the way to go.
But can you trade or spreadbet properly with £100? In my opinion…..no. Its simply not enough capital. You will need to risk over 20% per trade and then all you need is a 5 trade losing run and you’ve lost 100% of your capital.
So how much is enough?
Well, in my opinion it depends on the system and strategy.
Here’s an example which you can follow and adapt to your situation to help you calculate how much capital your system will need.
- Choose a base figure in your head to get started (£500, £1000, £10000, whatever)
- Backtest your system on your markets of choice against historical price data
- Identify the largest stop loss positions you would have required
- Then, take your base figure that you chose
- Choose a Risk Per Trade % (RPT) (1-3% ideally)
- Calculate your RPT in £’s (so 2% of £5000 would be £100)
- Take your required stop loss distance
- Divide RPT by stop loss distance
= Permitted Position Size
Is this position size higher than the minimum position size allowed through your broker?
If so, your base figure is acceptable
If not, your base figure needs to go up, or you need to risk more. I would not recommend exceeding 3% anymore. I used to say 5% but experience has taught me it’s just too high.
And remember, if you trade with money you cannot afford to lose, you will lose. Because the pressure of needing this to work, or the pressure of losing money you cant lose will cause you to make bad decisions and you will ultimately lose your money. It’s a strange downward spiral like that. You have to disassociate yourself from the money and accept that if you lose it, you lose it. If you can do that you are more likely to make it. I know it sounds strange, but it’s how it works. So if your base figure required for your system is £1000, but the idea of losing your £1000 would cause you to want to set light to yourself, then Spreadbetting and Trading is not for you right now.
My further advice would be to find a way to raise your income level so that £1000 means less to you emotionally.
Because it’s usually only when we don’t care about losing the money that we end up making the money.