Many traders have asked me this question, What shall be my Seed capital for trading. Shall this be 50K , 1 Lakh, 10 Lakh etc. Well as a trader you need to take informed decisions before you commit your capital to Mr. market.
I like to encourage traders to think about the relationship between trading account size and
position sizing, and for those traders trading their own accounts to also consider their trading
capital against their personal wealth.
Taking excessive risk in relation to their trading account.
1. If your trading positions are a significant proportion of your trading capital then any given
loss is also a big loss of your trading capital – a big double whammy!
2. If your trading capital is also a large proportion of your personal wealth then you have a
big triple whammy occurring and that is not a pleasant experience for anyone.
Its a well known fact many of traders enter market due to lure of easy money, hearing stories some XYZ made 10 lakhs in matter of few days. As discussed in may of my previous article, Trading is the most difficult job and requires lot of hard work to be a successful profitable trader.
Having said this, still there will be a lot of adventurous individuals who will try to dabble in market without having proper knowledge on what they are doing and losing their hard earned money.Hopefully, I can still persuade those people to not risk their hard-earned savings where the odds are severely stacked against them when they trade with scared money. What i mean by Scared money, is that money which if you lose will hinder your current lifestyle and endanger your social life.So lets discuss the same in detail.
1. Never put your entire saving in trading account because if you are new trader and learning to trade their will be time you will blow out entire account in about 3-6 months. Most of traders have experienced this at least once while learning how to trade. If you blow out you account, which is your entire savings, you are done trading!
2. Trading requires a clear and peaceful mind without distraction. Suppose you are trading with your savings which you cannot lose , fear of losing the amount will creep in your mind when you are placing the trade and your mind will be never be at peace. Worrying about making making money every week to pay your bills will likely doom your trading account.
3. Take it for granted you will make bad trading decisions if you are trading with scared money. Stress causes us to make irrational decisions. You will not see things clearly until after the damage has been done. A typically trait under these circumstances is for traders to take quick profits and let their losses run. They don’t want to take a loss, since they can’t afford to lose the money and a couple big losses will seal the fate of your account – right down the drain.
So always remember Trade with Capital you are willing to lose in Capital Markets. If due to bad trading decisions or bad market you bust your account you are not in condition that you cannot get back to feet and enter market again.
Every trader dreams of becoming a millionaire by making intelligent bets off of a small amount of capital. The reality of trading is that it is unlikely to make millions in a short timeframe from trading a small account.If an edge can be found, money can be made in logn run.