How Much Trading Capital is Enough to Start?
March 17, 2008
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John Forman - The Essentials of Trading author
I received this trader question rececently:
In your Ten New Trader Pitfalls article you mention a trader should start with enough capital. In your opinion, for forex trading: how much capital is “enough” in order to make the trade safe?
The one advantage of the forex market, especially with brokers like Oanda (no minimum trade size or fixed lots), is that you can reasonably trade with a very small account. But let me talk in more general terms.
The question of how much you should have to start trading comes down to a couple of things. First, what is the minimum requirement for trading the smallest size position you can. In many markets this isn’t an issue, but futures in particular requires some thought because of the fixed contract sizes and margin requirements. The second is how much risk you’re taking on a trade-by-trade basis and the kind of drawdown your trading is likely to see along the way.
What you want to make sure you do is have sufficient capital to make sure the minimum trade size you can put on doesn’t require that you take more risk than is reasonable. Further you need sufficient additional capital beyond the margin or other requirements to make sure that a string of losses, or a rough patch, doesn’t put you in a position where you don’t have enough money to trade anymore.
Remember, you can’t win if you don’t play, and you can’t play if you lose so much money that you account balance becomes too small to make any trades.
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