Size of bank required (Newbie)

Hi everyone,
As you will see this is my first post so I hope you will all be gentle with me. I have recently become interested in the markets as the result of a long discussion I had with someone I meet through my passion which is horse racing. The chap in question owns a number of very good horses and enjoys a very comfortable life style (his boat is bigger than the village I come from:cheesy, he has made his money as a trader in the city. He explained to me one evening over a number of drinks that anyone can now trade through the various options available online.
I have decided to give it a go and I am at present spending a great deal of time reading about the various markets and how they all work, he had also recommended this website which I have found to be very interesting. While I am gathering all the information I can I am also trying to accumulate my stake money and this is the area I need help with. During my 20 years of backing horses I know that stake management is vital and that to make a profit year in and year out you must have a sufficient bank to cope with the inevitable loosing runs.
Can anyone tell me what the minimum practical bank would be to start trading with, I have consistently made a profit backing horses over the last 10 years by never risking more than one percent of my bank on any one bet, so as you will see I tend to favour a more conservative approach. I understand that with spread betting due to the gearing the risk of losing money very quickly is high if things go against you. What would be our collective advice on a bank, I would intend to compound any profits ( should they every come) and I intend to take a long term view and don’t mind taking a long time to make some money. I know from past experience with the horses it took me almost five years to start making a modest profit on a regular basis.
Apologise if this is a rather long first question and thanks in advance.

As you get started, enough to allow you to put on the small positions you prefer - with a bit of a cushion - is probably a good initial bank. That can mean different things for different markets, though, so it's hard to be really specific without knowing if you're talking stocks, forex, futures, CFDs, etc.

Money management is vital. Risking 1 or 2 percent of your bank is quite prudent and you should be ok risking that on one trade. You mention spread betting and the risk of a big loss due to the gearing, be aware that you should put a stop loss at the point where that 1 or 2 percent figure is so you wont lose more than the percentage you have decided you will risk.

Example. Your bank is £10,000. You are willing to risk 2% of your bank i.e. £200.You open a position at £5 a pip/point and set your stop loss at 40 pips/point away from your opening position so your potential loss is limited to that £200.

You may not go down the spread betting route, but whatever you do work out a strategy for however you trade and try to stick to it (easier said than done). There is plenty of help on this site to guide you and try out your strategy on a demo account first if you can, it will help but when you start trading for real with your own hard won cash it really is a whole new ball game.

Good luck.

Boney24 said:

Hi everyone,
I have recently become interested in the markets as the result of a long discussion I had with someone I meet through my passion which is horse racing. The chap in question owns a number of very good horses and enjoys a very comfortable life style (his boat is bigger than the village I come from:cheesy, he has made his money as a trader in the city. He explained to me one evening over a number of drinks that anyone can now trade through the various options available online.

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If this guy has genuinely made his money from the city (trader).....I would stick like glue to him and think very deeply about what he tells you.

Do not be in any rush to jump in...it's a minefield...knowledge is a prerequisite to any trading activity you may do.

cv

Rhody Trader said:

As you get started, enough to allow you to put on the small positions you prefer - with a bit of a cushion - is probably a good initial bank. That can mean different things for different markets, though, so it's hard to be really specific without knowing if you're talking stocks, forex, futures, CFDs, etc.

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Hi Rhody, thank you for your feedback it is much appreciated. My initial thoughts were to focus on on or two types of market and try to specialise. I am a great believer in having in depth knowledge of a specific market, it was not until I concentrated all my efforts on one aspect of betting on horses that is started to make a profit.

Do you have any advice on what markets you think are easiest for a novice to understand.

20k is the 'norm'

Boney24 said:

Hi Rhody, thank you for your feedback it is much appreciated. My initial thoughts were to focus on on or two types of market and try to specialise. I am a great believer in having in depth knowledge of a specific market, it was not until I concentrated all my efforts on one aspect of betting on horses that is started to make a profit.

Do you have any advice on what markets you think are easiest for a novice to understand.

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Hi Boney

I think the FTSE 100 would be good for you to trade as it is the barometer for the UK economy as a whole. It trades well technically and you can grasp the macro econonics that move it pretty quickly.

Stocks are good to trade but they are quite complex because they have the usual macro economics (as per the FTSE) but also have their own micro economics, as you would expect, which makes things a little more difficult. In my opinion, they are the hardest product to value correctly as there are so many micro variables.

I think your understanding of risk and self control from trading the horses will put you in good stead for financial trading. Two things I would say is:

1) If you do trade CFDs, spreadbet, futures or other derivatives, make sure you understand the risks fully associated with margin and leverage. Plain equities don't have this risk compared to derivatives because the total amount you put up is the max you can lose.

2) Also, horse races, obviously, have a end. The market doesn't have an end, so your position is there as long as you don't run out of money (or close it). I know this is obvious, but having risk forcefully defined from the outset (as in horse racing) because that's the way it is, and not having risk forcefully defined (in trading) can be psycologically quite different. (I hope that bit makes sense).

Best

JD

gooseman said:

20k is the 'norm'

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The norm for what?

local starting out.

Boney,

No one can give you an answer for this as there are a no of factors to take into account including trading platform strategy and risk tollerence. The risk reward in my view has also got to be large enough to mean enough to you that you take it seriously.

I would recommend the following to help you decide.

First of all you must decide on a strategy and time frame,

then you choose the platform ie cfd, spreadbetting, direct access.

Once you know how many points your average stop is on the stratagy you have choosen you will be able to determine your bank.

eg if you chose spreadbetting and your ave stop loss was 10 pts at £1 a pt and a risk of 1% then you would need a 1k bank.

Once you are confident that you can execute your system as intended you can increase the bank in order to increase the risk.

I hope this helps answer your question.

Boney24 said:

Do you have any advice on what markets you think are easiest for a novice to understand.

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Again this depends on your system, will you need to watch the screen or will you do all your studys and place your trades at the start/end of the day. What time is most suitable for you, if you work during the day you may wish to trade us markets which open and close later in the day. In terms of instruments to trade i would recommend that u stick to indices.