Misconceptions about trading – How much money is needed for trading?

Life of a Trader 9 Apr 2024

When it comes to trading, money will be an inevitable factor. The question that follows will be: How much should we trade? In this podcast, Vee answers this inescapable question and explains how to scale up from the base case.

Transcript:

So for today, we’ll be talking about how much money we need before we can trade. We get a lot of questions around this topic from many of our community members as well as from the general public: how much money is enough before you can trade? I think it’s a misconception to think that you need to have a lot of money to start trading, and it’s completely false. I mean, it’s great to have a lot of money, but you do not need a lot of money to start trading. In fact, it’s much better to start with a small amount so that you can learn the ropes and get much better at managing your emotions when not so much money is involved.

The optimal amount of money to trade is the amount of money that you’re willing to lose, so that you are able to move on from the losses if you should incur any, and inevitably, you will incur some losses. So always trade with an amount of money that you’re willing to lose if your trades go wrong. You must know that it is essential to learn these skills with not so much money that it makes you worried and makes you feel that you have to watch the market all the time. So start with an amount of money that you’re willing to lose, an amount of money that you are not so worried about that you need to be watching markets all the time. In that case, you will not be too invested such that you lose sleep and you lose focus on your everyday life. So start with that, learn the ropes, to understand that the key to being successful at trading is to not be emotional, and that is very hard to do when you have a lot of money at stake. So start with an amount of money that allows you to maintain objectivity.

And a lot of people when they start with this amount of money, usually quite small relative to their net worth, we find that, what is the point right? Like it doesn’t really move the needle, it doesn’t change their life, but you have to understand especially at the beginning stages of your trading journey. You are just learning. You’re not going to use your own net worth to go learn something, and it’s impossible to learn trading in just a matter of a few days regardless of what the gurus on YouTube say to you, regardless of what social media says to you. It’s going to take time. So start with a manageable amount of money, and then as you learn the ropes, as you get better at it, you will understand that it’s about percentages. Then you can increase the amount of money that you allocate to your trading activities. It’s important to know once you get it right, you will not be in a situation where you have no money to trade. There will be people out there who are willing to invest in you, especially if you know what you’re doing. So, the key to this is not to start with a lot of money. In fact, start with a small sum of money, then grow your capital, right, and once you become proficient, you can now start to use leverage in your trading. That means with a small amount of money you can have a bigger position size than if you don’t use leverage. And leverage is a double-edged sword. Don’t start with leverage from the very beginning. So it’s one of the things that most people get confused about when they see on social media, like how come some guy who has just a thousand dollars can make $3,000 multiple times of what this capital is allocated. Most of the time, it’s because of leverage, especially so when you’re trading cryptos or you’re trading futures, it’s all about leverage. So to understand leverage, you need to start from the very beginning and learn about percentages, and then once you’re comfortable with it, you have good trading habits, then you can start to apply leverage to your capital.

So finally, why start with a smaller sum of money? It’s because the purpose of trading is to make money. So you put your money to work regardless of how much you have. You put it to work so that eventually, when you’re good at it, you really don’t have to work for money, and in fact, your money is working for you. As always, stay true to the process, and eventually, you will be profitable. Thank you.