airstream bathroom remodel lake villa low budget kitchen remodel powerhrg mail 1950s kitchen remodel hoffman estates adding a front porch to a colonial house hainesville .. Chicago Drug testing

How Much Money Can I Make With Trading? What Account Size Do I Need To Start?

What account size do I need?

How much money can I make with trading?

First of all, let's clarify a common misunderstanding: You never risk your full account size. You always have a "catastrophic stop", and it is important to define the "ruin" before you start trading. Let's say you start with a $10,000 account, and you decide to stop trading if you lost $2,000. In this example you are "ruined" if your account decreases to $8,000. Though you invest $10,000, you only risk $2,000.

Back to the first question: "What account size do I need?"

The first factor is the margin required by the exchanges. The margin is the "security deposit" that you need to have in your account if you want to trade. This margin varies depending on the contract you want to trade, e.g. $3,938 for the e-mini S&P and $1,688 for the 30 year Treasury Bonds. Many brokers offer a 50% deposit? on this margin requirement if you daytrade, i.e. you open and close the position on the same day.

If your trading system requires trading 1 contract of the e-mini S&P, and you hold the position overnight, then you need at least $4,000 in your trading account.

The next factor is the expected drawdown. If you would only deposit $4,000 in your trading account, the first trade moves against you by more than $62, and the value of your account falls below the margin requirement of $3,938, then you receive a "margin call". Many electronic platforms automatically liquidate your open positions, and don't let you trade any longer. Therefore, you need to know the maximum drawdown of your trading system in the past. Let's say your trading system had a maximum drawdown of $2,200 in the past, then you need at least $6,200 in your trading account: $4,000 margin requirement plus $2,200 "buffer" for a possible drawdown. A safe approach is to double the maximum drawdown, because usually the worst drawdown is still to come.

Let's say that based on these calculations you decide to fund your account with $8,000, and you define your "ruin" as $6,000, i.e. you are willing to risk $2,000 for your trading adventure. How likely is it that you lose the $2,000 you are willing to risk?

Assuming you have a well tested and robust trading system that is likely to achieve similar results in the future as in the past, then you can use the log-normal distribution to calculate the risk of ruin. In the following example we will use the values of our e-mini S&P Trading System "Coin Collector".

The profit factor of this system is 1.42, i.e. for every dollar you lose you earn $1.42. The winning percentage is 70.5%, and the average winner is $129. Using these figures and the results of the past trades, you can calculate the "risk of ruin" for our system:

The probability of losing the whole $2,000 that you are willing to risk in the next 30 trades only is 1.4%. That's very low. If you decide to risk $3,000, then the probability of losing all the money in the next 30 trades decreases to 0.07%.

Let's talk about the next question: "How much money can I make"? You first need to calculate the average profit per trade by dividing the overall profit by the amount of trades you made. In our example the "Coin Collector" produces an average profit of $37. Next you need to multiply this number by the trading frequency. The "Coin Collector" produces in average three trading signals per day, i.e. you can expect $111 per day per contract.

An average week produces 15 trades and $555 profits. Deducting commissions and slippage you can expect $842 in two weeks (=30 trades).

If you catch a lucky streak you could even make more. So how likely is it to MAKE $2,000 within the next 30 trades? The probability of making $2,000 is 20.4%.

Trading is about risk and reward: you want to get a decent reward for your risk. In our example the probability of losing $2,000 is 1.4%, and the probability of making $2,000 is 20.4%. That's an excellent ratio!

Conclusion:

Your account size is determined by the margin requirement set by the exchanges and the "buffer" you should have for an expected drawdown.

The question "How much money can I make?" can be answered using the performance report of the past results of a trading system. Keep in mind that these figures are only valid if you developed a robust (and not a curve-fitted) trading system.

Using some statistical functions, you can then determine the "risk of ruin" and the probability of making a certain amount of money. That's what trading is all about: risk and reward.

----------------------------------------------------------------------

The author, Ben Millane, is a recognized author on the subject of trading systems. His website, http://www.rockwelltrading.com, provides a wealth of informative articles and free information on how to achieve your financial goals through trading.

In The News:

Long Term Investing

In his wonderful book, 'Multiple Streams of Income', best selling... Read More

Its Better

Question: How does it get better when it gets worse?Last... Read More

Wall Street Paradigm

In 1960 an engineer working for a watch company in... Read More

Stock Market Diversification

In one of my previous articles (Investing in the stock... Read More

Its Snowing

The Winter Games for the Olympics are coming up soon... Read More

Oil Stocks As A Long Term Investment

The demand for world oil is increasing while world reserves... Read More

The Great Stock Market Secret

When the stock market is going up and all your... Read More

Money, Insanity and Wall Street

Money: the most charged word in the planet. It means... Read More

Jack and Jill

Jack and Jill went up the hill to fetch a... Read More

Municipal Bonds

Because there are so many stocks that are NOT paying... Read More

NASDAQ 800?

In November of 2000 when the NASDAQ was trading at... Read More

It Cant Be Done

Wouldn't it be nice if you were only in the... Read More

Picking Mutual Funds to Outperform the Market

With over 6,000 mutual funds available, it may be tempting... Read More

Trading Stocks ?Never Forget About A Past Trade

We all know that emotions control every decision that an... Read More

Investing in the Stock Market - When To!

Is really not as important as to how you invest... Read More

Psychology ? How to Reduce Negative Thoughts Relating to Trading?

The thinking process of the brain relating to the... Read More

Stock Investment Advice

Stock investment advice is easy to find. Do you get... Read More

Momentum

One of the basic laws of physics states that a... Read More

Stock Loans

Hedge current portfolio positions and gain access to capital resources... Read More

Maximizing a Stock Market Investment

Maximizing a stock market investmentThere are several factors an investor... Read More

Where Is The Beef?

Where is the beef? Or maybe it should be where... Read More

The 401(K): How The Insider Has Stolen Your Retirement!

Mutual funds were moderately successful in creating a presence in... Read More

Buy Low - Sell High

Now where have I heard that before? I know. It... Read More

Market Experience of a Na?ve Stock Operator

Sometime in the third quarter of 1997, someone told me... Read More

A Funny Thing Happened on the Way to the Stock Market

On the 40 year journey through the turmoil of a... Read More

led lights wholesale led flood lighting fixtures Pete's produce ..
led lights wholesale led flood lighting fixtures Pete's produce ..