Why do people start with small accounts?

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Old Jul 1, 2017, 4:01pm   #1
Joined Nov 2016
Why do people start with small accounts?

You sometimes see threads with people trying to turn professional trader with as little as 10k or even 5k. I can't understand the thought process there.

Let's say you start with 10k and compare trading for a living with getting a job.

If I work for a living, that's likely to cover my costs of living, and if I can set aside 100 per month, I'll end up gaining 1,200 over the year, or 12%. Better than a lot of hedge funds. If I can save 500 a month, my account is up 60%, better than almost all hedge funds! You are unlikely to make that return in trading in a year, and even if you could, after you have deducted living costs, what are the chances. Start with 5k, and we're talking 24% or 120%. Be realistic.

Working for a living, you're likely to increase your account more and gain pension money etc compared to trading. And the other thing to consider of course, is that if trading, your account can go down. Working doesn't usually lead to a loss.

Even for successful traders, it seems it only makes financial sense if your account is in the 6 figures*.




*of course some people can trade and work, and that makes sense if they can do it. I'm just referring to the idea of solely trading, no job.
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Old Jul 1, 2017, 9:56pm   #2
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Originally Posted by seekingTruth16 View Post
You sometimes see threads with people trying to turn professional trader with as little as 10k or even 5k. I can't understand the thought process there.

Let's say you start with 10k and compare trading for a living with getting a job.

If I work for a living, that's likely to cover my costs of living, and if I can set aside 100 per month, I'll end up gaining 1,200 over the year, or 12%. Better than a lot of hedge funds. If I can save 500 a month, my account is up 60%, better than almost all hedge funds! You are unlikely to make that return in trading in a year, and even if you could, after you have deducted living costs, what are the chances. Start with 5k, and we're talking 24% or 120%. Be realistic.

Working for a living, you're likely to increase your account more and gain pension money etc compared to trading. And the other thing to consider of course, is that if trading, your account can go down. Working doesn't usually lead to a loss.

Even for successful traders, it seems it only makes financial sense if your account is in the 6 figures*.




*of course some people can trade and work, and that makes sense if they can do it. I'm just referring to the idea of solely trading, no job.
Have you worked out goats on t2w?

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Old Jul 1, 2017, 10:26pm   #3
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I never really understood that either. To me, it only makes sense to have a go at it if you have a trading account size of 100 times your monthly expenses. Simple reason being you would need about a 15-20% yearly return on your account to maintain your lifestyle and not deplete your trading account. The required yearly return would depend a bit on the tax bracket you would be in, but that figure is assuming a 30% tax rate...conservative but not absurd.

Obviously if you have a methodology with a demonstrated return greater than this you could adjust accordingly, but for someone starting out, expecting more than that is being pretty optimistic (and even 15-20% yearly is optimistic for someone new).
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Old Jul 2, 2017, 10:51am   #4
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Originally Posted by Dr. Toad View Post
I never really understood that either. To me, it only makes sense to have a go at it if you have a trading account size of 100 times your monthly expenses. Simple reason being you would need about a 15-20% yearly return on your account to maintain your lifestyle and not deplete your trading account. The required yearly return would depend a bit on the tax bracket you would be in, but that figure is assuming a 30% tax rate...conservative but not absurd.

Obviously if you have a methodology with a demonstrated return greater than this you could adjust accordingly, but for someone starting out, expecting more than that is being pretty optimistic (and even 15-20% yearly is optimistic for someone new).
Yeah 100 times monthly earnings sounds about the right figure to me too. Are people just not doing the numbers? I'd suggest they spend some time with a spreadsheet and work all this out in advance.

Then there are other drawbacks. What if you don't make enough and have to go back to work? How large a gap on your CV can you allow. Probably anyone starting out trying to do this for a living with less than 50k should be strongly discouraged.
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Old Sep 9, 2017, 3:10pm   #5
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Originally Posted by Larrystone View Post
Did you open your first trading account with over £10k ?
Would you advise people to borrow against their home to open trading accounts?
No (as in I didn't deposit more than 10k, but yes I had more than 10k for trading if I wanted to deposit it) and no to borrowing against ones home, that would be reckless.
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Old Sep 9, 2017, 3:42pm   #6
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Originally Posted by Larrystone View Post
Did you open your first trading account with over £10k ?
Would you advise people to borrow against their home to open trading accounts?
of course i didnt ........like everyone i started up dripfeeding much smaller ££ in as I learnt my way forward ..........small steps ......mind you that was about 200 years ago .....hahahahha

also why would you drop seriuos money onto a broker you have never worked with before ? .........screw that ......let them prove they will look after you ...then drop more and more in ........

then keep levels just enough to support the daily margins required ....i never leave excess funds with my brokers .........all money not in yuor hands is at risk ....but we have to do it to trade ......

N
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Old Sep 9, 2017, 3:44pm   #7
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Originally Posted by Larrystone View Post
Did you open your first trading account with over £10k ?
Would you advise people to borrow against their home to open trading accounts?
seriously ? .............
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Old Sep 9, 2017, 5:28pm   #8
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Originally Posted by seekingTruth16 View Post
You sometimes see threads with people trying to turn professional trader with as little as 10k or even 5k. I can't understand the thought process there.

Let's say you start with 10k and compare trading for a living with getting a job.

If I work for a living, that's likely to cover my costs of living, and if I can set aside 100 per month, I'll end up gaining 1,200 over the year, or 12%. Better than a lot of hedge funds. If I can save 500 a month, my account is up 60%, better than almost all hedge funds! You are unlikely to make that return in trading in a year, and even if you could, after you have deducted living costs, what are the chances. Start with 5k, and we're talking 24% or 120%. Be realistic.

Working for a living, you're likely to increase your account more and gain pension money etc compared to trading. And the other thing to consider of course, is that if trading, your account can go down. Working doesn't usually lead to a loss.

Even for successful traders, it seems it only makes financial sense if your account is in the 6 figures*.




*of course some people can trade and work, and that makes sense if they can do it. I'm just referring to the idea of solely trading, no job.
Agreed. I also think working full time should not negatively impact trading activities if a decent plan is put together, and provides a regular income for financial stability.

That said, in the long term, trading (maybe mixed with medium term investments) can be very profitable.

Interesting thread.
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