Risk Level Dictates Money Needed To Trade
Risk Level Dictates Money Needed To TradeJuly 28, 2021
Almost every retail trader starts their journey into the markets with a simple question: “How much money do you need to trade?”
The answer may appear complicated, yet it is straightforward. And the answer is critical to long-term success in building a trading lifestyle.
Some traders are willing to start their risk level with $10,000 or even $50,000 in capital (or more). Others get started with only $1,000 or just $500.
The amount you start with isn’t as important as understanding the risk – which is ultimately your entire trading account.
As an example, let’s say a trader has a $10,000 account and only wants to risk 10% on a single options trade.
That means the risk could be up to $1,000.
If options are $100 a piece, then the trader could buy 10 contracts.
Or if the capital is $5,000, the trader could buy five contracts.
And if it’s a $1,000 account, the trader could only take on one contract.
By comparison, if the trader had $50,000, then the trade could be 50 contracts for $5,000.
See how the percentage of risk is the same no matter the account size?
Taking this example further, if a trader started with $10,000 and had a 100% gain in a month, the account would double to $20,000.
Similarly, if the starting capital was $1,000 at the end the account would have $2,000.
As the examples show, it really doesn’t matter the amount of capital to trade.
So, what’s your risk level to start… or to take the next step to grow your account?
We Saw: Fed’s rosy economic outlook while holding rates near zero –
- More governments, companies starting vaccine mandates
- Big Tech earnings reports crush expectations
- Hot economy, growth expected through end of year
We’re Watching: Potential for unrelenting chop and a sharp twist –
- Closing positions that have worked for profit
- Managing risk with cheaper options plays
- Setups that follow within expected moves