How much capital?

Hi,

I have been trading while holding down a job for a few months. Before that I was investing/trading and have built up a portfolio of £100K of shares. Thats my investment portfolio. I doi not want to trade with that.

I am now ready to give up the job and trade full time. I dont know whether I'll suceed or not but its what I want to do. I sat down and came up with about 25 reasons straight away why I want to do this.

My question is how much capital do I need to trade. I have heard others say you need between 40K and 100K to trade. QUESTION 1: Is that on margin or of your own capital?

Depends what and how you are going to trade. If US shares then you need a $25k account ("own capital") minimum to day-trade for regulatory reasons. Add generous something for possible drawdown, depending on the risk-profile of your model, to ensure you stay over $25k.

With that sort of account size, and 50% margin, you could trade sufficient size to access reasonable commissions.

Daytrading is very different to investing. How about you take a long holiday or trade evenings to assess if you will be a success, before burning too many bridges?

Thanks for replying.

First off. I've traded part time and made it a (limited) success. But I think you have to give it full focus if you are going to make a success of anything. That applies to any profession. And sometimes you just have to take a risk. Thats the whole point of living. I dont want to end up with a load of what ifs when I'm old and grey.

Second, you say $25,000. Fine. But I want to trade UK equities. Its what I know and am familiar with. I only plan to trade a handful of FTSE stocks whose charts/price actions I have a familiarity with. So with 20K and 200K on margin - do you think that's enough capital?

I have a risk reward ratio of 2:1 minimum. But I tend to do trade in £15K chunks. Thats just £300 per trade with a £150 loss if it goes wrong. I would need to make 200 trades to make my yearly minimum of £30K profit assuming a win to loss ratio of 50%. Thats an awful lot of trades. Can you suggest a better money management startegy?

Thanks for taking the time to reply. Much appreciated.

K

I can't really give advice on amount of capital required or advise you on whether to go for it. I think many people who give up regular jobs to start trading do it because at one level they know they "have to". They have reached the point where they need to see if they can.

I would point out though that I think you have made a miscalculation in your assumptions about number of trades. These are all big "ifs" and trading never works out like this but I think you have calculated that if you do 200 trades and half of them are winners then with a 2:1 reward risk and target of £300 you will have 100 times £300 or £30k. Don't forget that the 100 trades that are not winners will lose you 100 times £150 so even on this simplistic model you will only be up £15k.

The reality is that your wins and losses will not divide neatly into target and stop but you will have a lot of scratches and/or small winners and losers. You will hopefully have a few big winners if you can let them run. Hopefully you will not have any huge losers where you average down instead of stopping out and the market hands you your a**e on a plate. You know yourself what your current success rate is. Whilst going full time provides more focus it also provides more pressure. You are unlikely to do better at first probably you will not do quite as well as when you are not under pressure.


Make sure you plan not to make any money in the markets for a year at least and have enough to live on without eating in to money you can't afford to spend. The greater your capital the more relaxed you can be whilst trading. If you have a partner make sure they are in favour and supportive and even if you are optimistic at any point make sure you keep their expectations in check particularly in the early stages.

Best of Luck

Gareth