How much money do you need to start trading?

This question is asked, perhaps, by every beginner in the world of trading. And this is quite natural, although the most important point on which any novice trader should concentrate is not the amount of money, but the achievement of a stable result in trading. There is a separate article on this topic “ How to start trading on Stock from scratch. A step-by-step action plan ”, and I recommend that you familiarize yourself with it. As for the amount of money that will allow you to comfortably start in trading (whether it be exchange trading or trading on the Stock market), this issue is solved by simple arithmetic. Let’s count together.

So, let’s say that you have mastered the basics of trading and achieved a stable result on a demo account

(by a stable result I mean profitable trading for several months without serious drawdowns). If not, then once again I recommend you re-read the above article and listen carefully to all its recommendations. Why am I focusing so much on this? But because I don’t want you to lose all your money. Whatever they say, exchange trading (and even more so Stock trading) implies very serious risks, and therefore requires no less serious preparation. By the way, serious preparation does not at all imply training in various kinds of paid courses, seminars, etc.

So where did we stop? Oh yes, let’s say that you have achieved stable results trading on a demo account, and now you are going to start trading for real money, which is quite understandable and logical. What amount of money you need to start depends primarily on what trading will be for you. It’s one thing if you see it as an additional source of income in addition to one more main job, and quite another thing if you plan to make trading your main source of income (thus becoming a professional trader).

In order to make trading your main source of income, you need to start from the amount of income per month that you consider acceptable (or sufficient) for yourself. The fact is that this amount can vary greatly for different people. Someone is able to live on 20,000 rupees a month, and someone even 200,000 rupees of monthly income will not be enough. Therefore, first of all, we determine the amount of money that you need for a comfortable existence for one month, for the convenience of calculation, we will designate this amount as S.

If we proceed from the fact that, on average, successful conservative traders have an income of about 30-60% per annum, which, in turn, is 2.5-5% per month. Then the initial amount D for obtaining such income should be:

D = (100 / 2.5) * S, for 2.5% per month

and D = (100/5) * S, for 5% per month

I propose to start from the lower threshold of the monthly earnings to 2.5%, and use the first of the above formula:   D = (100 / 2.5) * S . Thus, for example, to earn 50,000 rupees per month, you will need an initial capital in the amount of: (100 / 2.5) * 50,000 = 2,000,000 rupees .

The above calculation did not take into account the unprofitable months (or even a series of unprofitable months) that are encountered in the work of any professional trader. Suppose a trader has received losses in the amount of 40,000 rupees for two months in a row. Then, after these two months, his capital will decrease by 180,000 rupees ( 40,000×2 = 80,000 – losses in 2 months and 50×2 = 100,000 – monthly expenses) and will amount to 2,000,000-180000 = 1,820,000 rupees . Now, in the case of a successful month, the trader’s income will amount to: (1,820,000/100) * 2.5 = 45,500 rupees .

In order to calculate the amount of the required initial capital, taking into account the unprofitable months, I recommend increasing the amount S obtained above by 10-20%. That is, in our example, the trader’s initial capital will be: 2,000,000 + 20% = 2,400,000 .

The above calculation is, of course, very approximate. The statistical average percentage of a trader’s monthly earnings is taken as a basis. The real income and losses of a trader per month may be different values, but on average they will be about the same.

 

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