For everyone just starting out with spread betting, one of the biggest unknowns is 'how much trading capital do I actually need to start out?'
This post isn't about the maximum amount you can trade with, basically because there isn't one, but more for those who either don't have a lot to invest initially, or are just a little hesitant to put up a large sum of their hard earned savings.
Well, if you plan on your trading experience being a little more than a flash in the pan then you need to think long term. Generally speaking traders have more losing trades than they do winning. The aim obviously being to still come out with a healthy profit at the end. To do this however you need to have enough of a pot to ride out the losses so you're still able to open the positions that make you profitable in the long term.
You can open a spread betting account and start trading with as little as £100, and when I first started to look into this I assumed I could start out with a trading capital of around £300. It didn't take long to figure out this amount was a little unrealistic. This is not the first time we've covered trading with limited funds.
It wasn't until I actually started to trade with real funds that I realised just how important having a decent amount to invest with actually is...and for more than just the obvious reasons.
It's common place that protecting your trading capital is essential for long term survival, and the best way to achieve that is to not use too much of it on each position, ideally somewhere between 1-5% on each trade depending on how risky your trading approach is. Obviously with anything less than £1000 you'll struggle to stick to this, and that's where the 'not so obvious' reason comes in.
I spoke about the psychological aspects of trading in a previous post, and here it is again rearing its ugly little head. If you only have say £300, and you're only betting £1 per point, then taking into account stop losses you would have to bet a large proportion of your total trading capital on each position, and then you only need 3 or 4 trades to go against you before you're pretty screwed and unable to open any new ones. This pressure to make each trade successful definitely isn't something you need to put on yourself and start letting the dreaded 'fear and greed' rule your decision-making. Especially when you could lose 3 trades in a row but then the next 6 be profitable. You don't want to end up chasing profits that aren't there and holding onto positions hoping they'll turn when your trading system told you to do the opposite.
If you want to trade properly but either haven't got a minimum of £1K (I would actually recommend at least £5K) or don't want to risk that much, then my honest advice for the first instance is to just wait and save, and for the second maybe you should assess whether trading suits the level of risk you're comfortable with for investing your money. Simply put, if you started out with £200-£300, then had a few trades go against you won't have the trading funds to enter any new positions to counter the losing ones. Which would really suck if your trading system actually works and the markets were just against you. If you're going to do it, give it a proper go.
Also, just as a little aside if you've not already looked around at spread betting accounts. There's usually a few providers that have decent introductory offers available where they match your initial investment (up to a certain value) so that you have more of a pot to play with. Always worth having a little shop around.
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