Trading With Minimal Capital

Filed under: Learn Forex Trading |

There are some issues regarding funding levels when trading the forex markets, and I would like to discuss some of these issues with you today.

 


Screen shot 2013-07-22 at 10.47.32For the sake of illustration, let’s take three fictional figures. Jack has a trading account of $100,000, and he hopes to make 20% on his account per year to withdraw as a $20,000 salary. Ian has a $10,000 account. Ian would be satisfied with a 20% rise on his capital per year, but hopes for more. Finally, Tom only has $500 to trade with. He wants to be in the position that Jack is in, and he want to get there as quickly as possible.

 

Now, setting your risk levels is ultimately determined by what you want to get out of the market. In order for Jack to make his 20% target, he only needs a rise on his bank of around 1.6% per month. To get this, Jack risks just 1% of his bank per trade. However, Ian risks slight more, as he has aspirations of between a 20-50% rise on his bank in one year. He risks 2% of his bank per trade. Finally, Tom does not have the time or patience to build his meagre bank up slowly like Ian. A 20% rise on his bank would equate to just $100 in one year, which he thinks is not worth the time and effort. Therefore, Tom risks 5% of his bank per trade, hoping that he will not have a drawdown of no more than 15 times his risk level. Now, if Jack and Tom have the same trading performance, Jack will gain 20% on his bank, but Tom will double his. Moreover, if Tom can do this for eight years straight, then he will be in the same position as Jack – and be able to be a full-time trader. However, he may be forced to adjust these levels when his bank begins to grow, as he would be risking increasing amounts of capital.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>