Source Link: https://algotrading101.com/learn/how-much-money-do-you-need-for-trading/

Are you planning to work as a full-time trader? If yes, here’s a relevant question: “How much money do you need to become a full-time trader?”  

Well, you need 20 times your yearly expenses. So, if your yearly expense is $50K, you need $1 million for your trading business. 

But, if you only want to test your idea and learn from the trial, you only need as low as $300 to start.

Why do you need a lot of money to be a full-time trader?

Let’s have an example:

If you start with $50K and have great long-term performance, making 15% per year for ten years. You will have slightly more than $200K.

That is not a bad number at all! However, you can earn more if you put in more money in trading. You will end up with more profit using the same amount of effort you put for your $50K investment.

You must also remember that if you choose to be a full-time trader, you need more profit to get by. 

Let’s take another example:

If you live in a developed country, you might spend $50K a year if you are single and thrifty.

So, $50k x 20 = $1 million.

If you make 15% in your first year, you get $150K. After expenses, your portfolio is still up by $100K for the year.

Continue this path, and your portfolio can compound nicely to $3 million in 10 years.

You can go more than 20 times your expenses. But, the rule of thumb is that your trading capital needs to be 20 times your yearly expenses. Do not go less than 20 times.

How much do I need if I trade using other people’s money?

If you use other people’s money, you do not get all the profits. Usually, you will only get 20%. Thus, you need 100 times your yearly expenses. 

This means you need five times more capital if you trade other people’s money.

Can I start trading with $300?

If you only want to get started and test your strategies, you can start trading with $300 capital. I state that you need $300 to get started because, in Forex trading, you can trade 0.01 standard lot (a small amount).

But if you want to trade in a stock currently trading at $200, you need $20,000 to get started.

Related Questions

What is the point of trading if you trade $300 and earn pennies?

The $300 to get you started will help you learn the process and improve the strategy. You can start building your record with the $300 start-up capital. Putting too much money is risky if you are testing an unproven strategy.

Can I start trading with no money?

Yes. You can test your strategies using virtual money.

How much do I need for algorithmic trading software?

You don’t need too much because you can use free software. This free software will let you test your ideas for free.

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