Other things being equal, capital is an advantage. It allows you to overcome living costs & expenses much easier, you have more resilience against drawdowns, you can trade more positions/more markets at once, and you can make more money with less % return. Also if your trading method stops working, you can live off the interest until you find a new one that works.
Why capital is so important or even critical in successful trading?
- Thread starter OddTrader
- Start date
Suppose, capital is a constraint, does that mean one can not or should not do trading? Many big corporations and big empires have started with limited resources & capital. I agree, capital is important, however is the handling of it not more important? Is the person behind the trading or the system in use not more important or significant than capital?
Because of the psychological aspect between emotion, risk, and money. If you have a 100k account and are risking 2 % on each trade, a 2 k loss might hurt a little but you still have 98k to play. If the same trader is trading a 10k account and losses the same 2k, the psychological effect will only wake up the internal demons and the losses will start to snowball. In the end, it all comes down to consistency and expected rate fo return. Having a 100% return system means very little if you only have a 10k account to trade, the trader who makes 10% on 5 mil capitial will always win in the end because he has the ability to not overleverage and does not have to take excessive risk to make decent coin. In the end, there is only 2 ways to make it in this game, have a big enough account that only a small rate of consistent return is needed to generate a good income, or grow some balls, develop some strict discipline, and exploit the hell out of the edge you have using leverage.
Yes, but how much did that experienced trader first lose as an inexperienced trader trading 140 : 1 leverage in the minis ?
That is where most fail because in the beginning most can not handle the emotions that come with trading high leverage on a small account.
With one modification, "a disciplined, experienced trader". Day-trading is not a requirement nor is the specific instrument when discipline is employed.
However, the capital needed to throw-off a "feed a family" income is directly related to the rules and regulations of the chosen vehicle. The wrong vehicle can add additional, perhaps unsurmountable burden on limited capital. As example, 10K for futures trading espouses a different capital burden versus equities, due solely to rules and regulations of the vehicle itself, which is out of the control of the trader.
Wear pants that fit.
That sums it up for me.
Osorico
Good post!
PS: "...there is only 2 ways to make it .." There is actually a THIRD way. What it is? it is one of my secrets of the trade.
Please keep it a secret......
Trading is a business. If a business is low on capital they can quickly become illiquid and soon thereafter go out of business. Same with trading. It's imperative to always be well-capitalized (i.e. every single day, see the blowups on Martin Luther King day on Globex); less leverage than possible and more capital than necessary.
I am confused as many business grew big with small capital. They might have been careful,made small steps and many other factors that made them successful. However, if capital is important, does that mean that only rich traders are successful? 
What about us small traders, can we not hope to earn or make a profit at least? Do we small traders need to do pooling of money to be successful in trading?
What about us small traders, can we not hope to earn or make a profit at least? Do we small traders need to do pooling of money to be successful in trading?