Hey there traitor I know Merry Christmas you filthy animal and a Happy New Year my friend I am in a ratty mood today I’ve got a headache I literally just found a gray hair in my head and I’ll have it’s where the silly Christmas jumper which I’m not going to be taking off until after Christmas because I’m tired of being called a Scrooge all the time but I thought of something that could put me in a good mood and that’s what I’m going to do because I thought first of all I can help you guys out with something and second of all I can clear some stuff out of my inbox because you see it must be that we’re coming to that time of the year where people are planning for next year and therefore I keep getting some similar questions appearing on my inbox every day so I thought rather than having to answer every one individually I’m going to create a video about them and share with everyone so the first question I keep getting asked is about trading targets and we covered that in a video last week so if you haven’t checked that one out we’ll go and check that one out we released it last Friday it might help you out and the second question and this one that everyone seems to be asking at the moment my inbox is full of it if you didn’t guess already from the title of the video it is of course how much money do you need to start trading so to answer this in this video we’re going to focus on forex trading because there are some differences between asset classes I mean generally speaking is quite similar but for example with equities you’re going to have extra transaction costs with things like bonds you’re going to need more money in general so most of you trade Forex let’s stick to forest because it’s more simple so what do you think how much money do you need a starting capital in a trading account in order to be able to trade Forex and I don’t just mean how much do you need to open an account and open a trade I mean to trade sensibly how much money do you think you need in an account now I have to be honest with you some of the amounts that I’ve seen thrown around in the comments in my email inbox asking me is this a good amount to start trading with have been completely ridiculous and it may have been you that asked the question I mentioned an amount and if it was then please don’t feel offended you want to know and everyone has to learn somewhere but we’re talking about like five hundred dollars or 200 pounds or how do I take my paper owl money and become a millionaire in the shortest time possible deep down you and I both know that that’s just not going to work believe me I don’t want to kill your enthusiasm I want to encourage you to be trading well but I need to make sure that you’re doing this sensibly and in a way that’s realistic so I have to set you straight I see all these kind of junk messages coming through on our YouTube channel from people saying they’ll take 250 dollars and make you a reliable income every month believe me it’s not going to happen so I don’t need to feel discouraged by the same time let’s be realistic in this video let me tell you a little story about how I got started with live accounts for trading because as always seems to be the case I had to learn the hard way with this now firstly at the time I probably wasn’t ready to be trading with a live account my trader was hit-and-miss at best so I probably could have saved myself a hell of a lot of headache by actually trading on a demo account but for the sake of the story we’ll forget that I wasn’t a consistent trader in this instance so all those years ago what I was basically doing is putting as much money as I could afford into my trading account because I really believed in it so that was coming from my monthly wage let’s say it was something like 500 pounds a month so every month I’ve got paid and I put 500 pounds into that trading account now rather than saving that money and letting it accumulate into a bigger pot of cash to trade with I’d actually be so eager that I’d get started right away of my trading so I take about 500 pounds and I start executing trades in the live markets with that small amount of money in the account so there I am with 500 pounds in my trading account and can you imagine what happened next well let me tell you I definitely didn’t become a millionaire from that 500 pounds in order to trade with that 500 pounds just set like the minimum contract amount I have to be over leveraged and over exposed so yes sometimes I might have some great performance I start racking up some more money and be like yes caching but then all it took was one or two losses which is inevitable you’re going to lose at some point and because my risk profile was too too extreme then I’d burn out a load of that account rather than losing the one or two percent that we say you should lose that maximum on a trade I was risking like big chunks of the account so I only took a few trades to pretty much lose the entire thing so I’d lose that fire hundred pounds then I’d get paid the next month take that 500 pounds put it in a trading account lose that and do it again the next month and again and again you know Einstein’s definition of insanity doing the same thing over and over again expecting different results well for those of you that had an inkling that maybe I might be a little bit mental that confirms it for you so after a while of being stupid and doing this over and over again I started to realize that I must have burned through a few thousand pounds and if I just waited I would have had that big chunk of cash to trade with in the first place not only would this have been more beneficial to me because as we both know the more money you have the more money you can earn but also it would have allowed me to have a more conservative risk profile and more in line with what we always say was that you should only ever have once 2% of the account at risk now you get the chance to learn from my mistake there and not do the same thing because of course if you’re really eager to get started you can throw a few hundred pounds or a few hundred dollars into a trading account of course you can but eventually you will lose that money and if you can’t afford to put more money than that into a trading account now that I’m pretty sure you can’t afford to lose that now it’s either alright then so how much do you need in a trading account well let’s work backwards and see if we can figure it out our starting point is going to be that we know we want to risk a maximum of one to two percent of our account per trade if we use an example of like euro US dollar and use one standard lot so one contract for euro US dollar we can start to figure out how much money we need in the account I believe at the moment one standard love euro US dollar is about eight pounds per pip ten euros so let’s say from your testing of your strategy you figured out that the maximum stop-loss size from any of the trades you’ve done in the past was about 50 pips so if we’re going to be really conservative with how we’re figuring things out we need to budget for that 50 pips to be one percent of the account 50 pips at 8 pounds per pip is of course 400 pounds so that 400 pounds equals one percent of the account that’s what a stop loss is for one percent at risk of the account so in order to find out what the whole account size is therefore we need to at times that one percent by a hundred to make it a hundred percent which is of course 40,000 pounds I know the four 40,000 pounds is going to sound like a hell of a lot of money to most people but we’re being realistic here I don’t want to sell you a dream of thinking that you can turn peanuts into a mansion I want us to be sensible about this and get you on the right track so if that amount of money is too much for us though we’re never realistically going to save that amount of money then what can we do to reduce them well of course we need to make adjustments but when we make those adjustments we need to make sure that we’re not adjusting our risk profile we don’t want to get high risk with our trading just because we haven’t got a starting capital so we’re going to make adjustments to everything else except our risk profile so to start with we said that we want to risk one to two percent of our account maximum per trade but when we calculates that 40,000 pounds that was based on 1% at risk so what happens if we put it as 2% at risk per trade then of course the start and capital requirement drops by 50% it becomes 20,000 pounds that’s needed but if we’re going to do this we’re going to do it in a smart way so we’re not just going to say that we put 2% at risk on all trades full-stop know what we mean is that if you have a basket of trades basket of opportunities and there’s some that you would have risked more point 5 percent of your account or 1 percent of your account because there may be slightly more risky and then there’s ones that are less risky so you’re willing to risk more of your account on them like the two percent ones what we’re going to do is reduce that basket and say you can only open those low-risk opportunities where there’s a high success rate less chance for going wrong and you are happy to put 2 percent of the account at risk on those ones and all of the other trades the 1% ones the noir point 5% ones they’re gone you can’t trade them because you don’t have the capital to do them in a low-risk way so in other words we’re restricting our trading and we’re being very very cautious because we know that capital is a problem for us here next we said from our testing we may have seen that for example the maximum stop-loss we needed on any of the trades was 50 pips now what if we reduce that by half so we actually make it 25 pips as the maximum stop-loss now in the same way we did with the 1 & 2 percent the account at risk this doesn’t mean that we set up stop-loss as static for all trades the stop-loss is still always associated with the set so the setup dictates the size of a stoploss but why it means is that if there’s an opportunity that requires a stoploss for above 25 pips it’s a no-go for us we can’t execute that trade because we haven’t got the capital we need so we’re only allowed to go for opportunities that are 25 pips in the stop-loss and below so now by restricting ourselves with those two rules that we’ve just discussed we’ve managed to reduce our capital requirements to 10,000 pounds but what happens if you lose some traits it’s inevitable that you’re going to lose some trades and if that 10,000 pounds is the minimum capital requirement if you’d lose a trade you’re below the minimum capital requirement so we need a buffer in a previous video about draw downs we agreed that we want to aim to have a maximum drawdown ever of 20% of our account so if we take that 20% and try and figure out then what capital we need we end up with 12,500 pounds because a 20% reduction on 12,500 pounds will equal 10,000 pounds which is of course the minimum capital requirement for us so that gives us our buffer to have the drawdown of 20% now realistically these are the only restrictions we can make so based on these that leaves us with a minimum amount that we need to trade one contract of euro US dollar as 12,500 pounds and as if we’re going to be risking 2% of our account on each trade with a maximum stop-loss size of 25 pips and that means that you’re very restricted in the opportunities you can take which is not ideal for trading because sometimes you’re going to get tempted by the other opportunities so what else can we do instead with a lot of major brokers these days you don’t actually have to open a full contract they also all let you open portions of a contract so for example you can open lor point 1 of a contract for euro US dollar and some brokers even let you go as low as Noor point naught 1 so what we do in this case if we want to trade Noor point 1 we take our starting capital 12,500 pounds needed to trade one contract fewer US dollar and we divide it by 10 which gives us 1250 pounds as the starting capital at a minimum with that buffer to trade Noor point 1 of a contracts per trade obviously we go lower to naught point naught one of a contractor’s by strongly suggest you don’t do that let me tell you why to put it very simply you need to be remunerated for your time if you’re trading naught point naught 1 of a contract and you’re making what a pea per pip in the market then you would make more money working minimum wage somewhere for the amount of opportunities you’re going to get so you might as well actually go and spend that time working somewhere using the money that you earn and putting it aside so that you can build up a larger trading account you see not point 1 of the contracts that’s one thing you know it’s still quite low but you can make a decent second income from there you can have some decent pocket money to go and spend and have a nice life by a trade not point one of a contract or use compounds and returns and build it up but you see you could do compound and returns with naught point naught 1 of a contract but the thing is it becomes such a small amount then that you’re trading there’s always like it’s negligible which means that you’re going to be more willing to put on more risk because you see it as it’s only like 32 P that I’m losing here or something like that and it means as well that you’re not going to be taking it as seriously you know after a while as well you’re going to get so sick of earning 63 P per trade that you’re going to be like okay that’s max out this account let’s see how big I go how overexposed and how much money I can make from a trade with a small account and when you start doing that your money is going to be gone so my friend this is just my way of calculating it now other people have their own ways of calculating what the minimum capital requirements are but based on my experience based on what I see is being sensible based on the rules we discuss all the time about risk and that kind of thing and based on what I’ve seen other people doing this is what I truly believe is the right way to go about calculating it if you want to understand the minimum requirements now if you didn’t understand anything in this video please send me an email leave a comment below to ask for clarification because it’s a really important subject and I want to make sure that you understand it properly before you start trading life because I don’t want you to risk burning out any accounts unnecessarily if you have any comments if you disagree with anything I’ve said leave a comment below let’s discuss it if you liked the video make sure you hit that like button down there if you do hit the like button you’re going to be all Santas good list and we’re right by Christmas now so get some festive cheer going if you want more videos about learning straight make sure you subscribe to the channel and if I don’t see you before Merry Christmas you filthy animal and their Happy New Year you you
One of the most popular questions we receive is about trading capital. In particular, new traders want to know how much money you need to trade (forex). In this video, we go through our own thoughts on money management, risk management and how much money you need in a trading account as a minimum to be able to execute sensibly.
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