Why would a beginner need a large account?

[maxinger]

The only reason why a beginner would need a large account is to keep risk & expectations realistic.

Small accounts lead to unrealistic expectations and unbearable risk taking.

The other thing is … let’s assume the trader has an edge … he might be forced to bet more than the optimal size which makes ruin almost guaranteed.

If the minimum bet size is 50$ and our optimal size is 30$ then we’re over betting by 20$.

Betting more than your edge implies is catastrophic.

Now with micros and fractional shares it lowers the margin required to bet within the optimal zone but still … the human side of the equation is the weakest link.

I don’t believe that anyone with less than a 100k account would be satisfied with a 20% annual return.

Go trade futures or other leverage products.
Then you don't need a huge fund in your account.

If you lost $$$$, you have to top up your account.
If you lost $$$$ again, you have to top up your account again.
etc etc etc etc etc
Better switch to demo trading right away.

If you earn $$$$, keep the profit in your account.
Then you can trade with a bigger lot size.
etc etc etc etc etc
Then your account will grow exponentially.

 

[Handle123]

I have been trading as an amateur for around 7 or 8 years, and in that time have done reasonably well some of the time, but have gradually lost money overall, probably around £2000 over that time, which from some of the stories on here, doesn't seem too bad.

I have never funded my account with more than £1000. Currently it is around £300 and has been for some time. I trade every day to learn how to do it better.

Time and again I see the advice not to trade unless you have a large account (£10000 + seems common).

Given that most traders, and presumably nearly all new traders, lose money, to have a large account when you start would seem to be very foolhardy.

While you will never make much money with a small account, there are enough online brokers out there who will let you invest for very small stakes while you learn how to trade competently.

My day job is trading secondhand books, which started on a shoestring but now makes a healthy income. I regularly spend thousands of pounds on buying books, because I know what I am doing. However, when I started out, it was daunting to spend £100 on a book, and I made many mistakes.

It seems to me to be the same with trading stocks/indices/forex or whatever. Until you know what you are doing, it is madness to trade in large amounts. If you ever get any good at it, use your profits to increase your trading size, and eventually you will have a large account to trade. Am I missing something here?

I believe in taking small account demo, triple it three times than trade micros till you triple it in real time.

 

[Drawdown Addict]

It is not about amounts.
It is all about percentages.

Whenever you see someone talking about amounts you will be able to spot a newbie.

 

[BMK]

It is not about amounts.
It is all about percentages.

Yes, but in certain contexts, there is a basic minimum amount that you need, or you won't be able to function.

In the USA, if you want to day trade, you need to maintain $25K account equity to comply with the PDT rules.

If you're not day trading, you still need a minimum of $2000 at most brokers in order to have a margin account.

Yes, I know there are shops where you can start trading futures or forex with only $500.

But whatever you are trading, you need enough capital to survive a losing streak.

Some of the most successful models for trading involve strategies that may only produce winning trades like 75% or 85% of the time. But the risk/reward ratio is good enough that even if you trades lose money 15% of the time, you are still making a healthy net profit.

So that means that in theory, in this example, out of 100 trades, 15 of them will lose money. Can you get through ten or fifteen losing trades without draining your account?

If not, then you don't have enough capital to employ that strategy.

 

[Drawdown Addict]

Yes, but in certain contexts, there is a basic minimum amount that you need, or you won't be able to function.

In the USA, if you want to day trade, you need to maintain $25K account equity to comply with the PDT rules.

If you're not day trading, you still need a minimum of $2000 at most brokers in order to have a margin account.

Yes, I know there are shops where you can start trading futures or forex with only $500.

But whatever you are trading, you need enough capital to survive a losing streak.

Some of the most successful models for trading involve strategies that may only produce winning trades like 75% or 85% of the time. But the risk/reward ratio is good enough that even if you trades lose money 15% of the time, you are still making a healthy net profit.

So that means that in theory, in this example, out of 100 trades, 15 of them will lose money. Can you get through ten or fifteen losing trades without draining your account?

If not, then you don't have enough capital to employ that strategy.

We can´t do anything about minimum requirements to trade. Either way 25k is not considered a large amount.
You can see how you are turning to percentages, to explain an algorithm that is profitable, at the end of your text.
Whilst is true that you can´t trade with 1 coin and you need a minimum amount in your account, once that is set in place all you care about are percentages related to your risk. Like it should be.

 

[Blitzjoker]

There are no such rules in the UK. Spread betting is commonplace (though not allowed in the USA I think) and allows you to bet cheaply on major indices, Forex pairs, and shares. There is also no tax on profits from spread betting, as it is classed as gambling. If profits were taxed, losses would have to be allowed as expenses which would not sit well with the taxman as far as I understand it. Perhaps we are lucky in the UK in that we can learn to trade comparatively cheaply.

However, I think a lot of newbies start out thinking that trading is the road to riches, and they need a large account to make it worthwhile. Most find out quickly that neither of those things is true.

 

[BMK]

There are no such rules in the UK. Spread betting is commonplace (though not allowed in the USA I think) and allows you to bet cheaply on major indices, Forex pairs, and shares.

Spread betting and CFDs are not available in the USA.

But you can make bets that are very similar using options. The capital requirements are not much, as long as you are not trying to sell naked short options.

 

[alistera]

I have been trading as an amateur for around 7 or 8 years, and in that time have done reasonably well some of the time, but have gradually lost money overall, probably around £2000 over that time, which from some of the stories on here, doesn't seem too bad.

I have never funded my account with more than £1000. Currently it is around £300 and has been for some time. I trade every day to learn how to do it better.

Time and again I see the advice not to trade unless you have a large account (£10000 + seems common).

Given that most traders, and presumably nearly all new traders, lose money, to have a large account when you start would seem to be very foolhardy.

While you will never make much money with a small account, there are enough online brokers out there who will let you invest for very small stakes while you learn how to trade competently.

My day job is trading secondhand books, which started on a shoestring but now makes a healthy income. I regularly spend thousands of pounds on buying books, because I know what I am doing. However, when I started out, it was daunting to spend £100 on a book, and I made many mistakes.

It seems to me to be the same with trading stocks/indices/forex or whatever. Until you know what you are doing, it is madness to trade in large amounts. If you ever get any good at it, use your profits to increase your trading size, and eventually you will have a large account to trade. Am I missing something here?

Simple economics, until you can successfully trade a small account you are destined to lose your capital with a large account, at least most of the time, however with a small account the time to grow it is measured in years unless you can trade at extreme levels such as 100% per month while at the same time having enough capital for monthly expenses, keeping that last part stable is nearly impossible which is why almost every high leverage with low capital option presented from prop trading to courses will fail, money makes money but time also makes money, what doesn't make money is lack of time and lack of money.

 

[Blitzjoker]

Simple economics, until you can successfully trade a small account you are destined to lose your capital with a large account, at least most of the time, however with a small account the time to grow it is measured in years unless you can trade at extreme levels such as 100% per month while at the same time having enough capital for monthly expenses, keeping that last part stable is nearly impossible which is why almost every high leverage with low capital option presented from prop trading to courses will fail, money makes money but time also makes money, what doesn't make money is lack of time and lack of money.

Yes, clearly you can not make much money with a small account. However, it seems that many beginners, who are optimistically attempting to make a living at trading, do themselves no favours by starting with a large account and losing a lot of it pretty quickly, which is almost inevitable as trading successfully is hard.

Certainly, once you are a consistently profitable trader (if that ever happens) it would make sense to plough money into your account in order to grow it. Even then, I would think it would be more prudent to grow the account and re-invest the profits. maybe adding extra cash if you have it, rather than trying to live off the proceeds, at least until you had a large enough sum where this was a practical proposition.

 

[murray t turtle]

It is not about amounts.
It is all about percentages.

Whenever you see someone talking about amounts you will be able to spot a newbie.

%%
LOL I'm not a drawdown addict, but certain exceptions apply
Actually, so many have made millions , billions with drawdowns in stocks + funds;
it can pay real well to know the big difference in a drawdown + a loss.
Speaking of %'s ,so many sell+ buy @ 50% drawdown, one fund in Futures magazine named thier fund ''60% Drawdowns'' LOL. NOT not a huge fund/ but it had some great years + many millions of AUM