It's not that $25,000 is the "right" number, although $500 is definitely a wrong one. Somewhere in between () is the right number for you.
What that is will be up to you. Just be aware that being too close to the minimum means you can't handle any losses or make any mistakes.... And losses don't only come from mistakes. Everyone has the experience of doing everything right in a trade, but it goes south anyway. It's a matter of percentages, so you will need a cushion.
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@noobforlyfe - you stated that you are a firm believer you can make something out of nothing. Without meaning to sound harsh, when it comes to trading I think that is the tallest of orders. At the beginning we all have passion and determination but the markets have a tendency to erode that very quickly. It only takes a string of losses to realise that. And however you proceed, you won’t find any edge of difference that another trader hasn’t already tried.
That is why being funded adequately is so important. There are some who are adamant that when trading ES you need $50,000 of capital. Some say you can probably get away with $25,000.
Personally I like to have $10,000 per contract I trade and I like to keep a constant $50,000 balance. So when trading 5 contracts with a 3 point stop, my total risk per trade is 1.5% of that capital. So, including commissions I can be wrong approximately 64 times in a row. That is unlikely to happen because I know the mathematics of my trades and their probable outcomes, therefore my probability of ruin is low. However, I have had days (well documented on here) where nothing went right and I ended up drawing down into my initial trading capital by quite some margin. But - I could dust myself off, level out and fight another day because my capital cushioned that loss.
So if we dial this down to a smaller scale, trading a single contract in my opinion would require at least $10,000 in your account. I’ll even throw you a tighter stop at 2 points. Including commissions you could be wrong 95 times in a row.
That’s may sound like a lot of forgiveness, but you will be amazed how quickly you will burn through those losing trades. Plus, trading a single contract is inherently difficult because you have no ability to scale out of a position and immediately reduce risk. And loosely speaking IF your profit target is more or less be equal to your risk, you should be aiming to grab 2+ points per trade.
There is much, much more to all of this than I can possibly write here and I have just scratched the surface. My point though is that identifying the risk is much more important than profits. And with risk, undercapitalised accounts will ruin very quickly.
- Trade what you see. Invest in what you believe -
Last edited by JonnyBoy; July 12th, 2016 at 12:07 PM.
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Both of you are correct and I see your point of view and will definitely consider this when I even think about going live. Thank you for the "real" constructive feedback and please feel free to speak openly at any time. I know you guys have been through it all and your experience will definitely speak more volume than my words.
So thank you once again for honestly sharing your personal experience and thoughts. I truly do appreciate it. The positivity from the members of this forum is truly amazing.
For sure, that is also many pointed out that trading with SIM is VERY different than live in terms of psychological. Because I am still learning the very basics, I am following many great journals here on the forums.
Thanks JonnyBoy for your time and feedback. I am noting everything you guys mention and always keeping in mind the thoughts and feedback many of you gave me.
I wouldn't presume to know all the ins and outs of the tax consequences for your particular situation. I think only a qualified tax professional can provide the answers you seek. If you are with a Canadian broker, you won't get a slip with your income on it at the end of the year to use in your tax return (i.e. you won't get a T5, T4 etc.). It will be up to you to calculate your income/loss and report it. Only a qualified tax professional will be able to help with that. Sorry that I don't have more specific answers. This is an area that is not straightforward. So sorry that I can not be of more help.
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Hey thanks, for your input on this. I'm just looking into this on the side and see if someone can help me understand how it usually works (assuming those who came before me. Sorry for the double similar questions. Was looking to get a collective input from individuals who trade from toronto, as laws may be different slightly from province to province.
Thanks though My accountant isn't too informed regarding this as he doesn't have clients trading commodities, he usually does taxes for families that works and small businesses. (I feel like he should still know more about different occupations, but it is what it is sadly and surprisingly)