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When I first started with my 10k account just going straight into futures without any knowledge..... thinking I was good enough with my stock trading/ETF skills(Thought SPY and ES was exact same thing)....i was quickly down 2k. The amount of leverage and every tick was something I was not used to compared to trading ETF and option although technically the same thing.
Now I am jabbing in and out with a 5k account. Mainly trade Nikkei 225 mini overnight and I still jab on index futures during U.S. session.
It is hard psychologically even though I have great setups in terms of risk/reward. What is hard is that even when you pretty much get in at the rock bottom levels, the ticks and the moves are so large in relation to your overall account size it does mess me with me psychologically and that is why I think I tend to be scared and cut my winners too fast. Overall I am somewhat happy I initially started with a small account because had I initially started with 50k or even 25k, I would keep thinking I can still come back and probably would have ran that to 0.
By having a small account there are pros and cons when I am initially starting out. My patience and discipline to wait for very high probability setups are SUPREMELY high. I lost the urge for marginal trades although they tend to play out in my direction. There is less margin for error and that has taught me the name of the game in which I try to mimic the pros in only waiting for high key setups and maybe trade 1-3 times max.
The con however is I keep looking at the P&L with too much emphasis since again the movement in relation to the account is so huge. I tend to be able to get in at amazing risk/reward levels but even in the initial entry, sometimes the market likes to tick around stops or trap people and that messes with me psychologically thinking oh, maybe I am wrong in the trade.
Anyways right now with my small account size I am still trying to get even to pay back my tuition by being disciplined and patient for high key setups. I need to get past the fear of market doing so and so, and accept the risk. Once I payback my tuition, then I will start adding more contracts but for now I am trading just 1 and it is sometimes a handicap since if I was trading 2, I could get out of 1 after it hits my initial target and hold the other for more.
Trading: The one I'm creating in the present....Index Futures mini/micro, ZF
Posts: 2,311 since Nov 2011
Thanks Given: 7,341
Thanks Received: 4,518
Have you thought about M6E the e-micro Euro a CME product? $1.25 in Tick size/contract.
And there's FX as well where you are in control of the per pip dollar amount based on how much you trade. 1000=micro lot or $0.10/pip, 10,000=mini lot or $1.00/pip, 100,000=standard lot or $10.00/pip.
One very important aspects of this business is to live to trade another day. So you have the needed time to develop the necessary skills, habits and behaviors. Large accounts make this possible. So does trading instruments that don't cost a lot of risk per trade that's why I outlined what I did above.
How do you trade? What's your method? Contrary to popular belief I find Volume Profiling Forex works extremely well using minute data.
Below in EURUSD and Profiling volume back to Aug 25 2015 I targeted the other side of value and the market turning points also the value area low. On a micro lot you could've risked less than $30.00 with the stop up where the ruler on the first chart below starts and have targets at multiples of this risk. These charts are daily. Higher timeframe, higher probability trades, it's that simple.
This trade and ones like it takes patience but most in his business like and want to be doing "stuff" all he time. Most in this business lose money so "stuff" means just that.
Trading: The one I'm creating in the present....Index Futures mini/micro, ZF
Posts: 2,311 since Nov 2011
Thanks Given: 7,341
Thanks Received: 4,518
Offering an answer......
I have a large account. I can withstand big drawdowns and still keep going, remain in business. These things happen in this business. It's the nature of the beast.
A drawdown can easily be $5k. Having $20k to still trade means you have an opportunity to create new revenue.
Having just $5k, well you get it. Yes you would (hopefully) trade smaller and better suited instruments but these type account blow outs happen a lot in this business.
The probability mind set needs to be fully ingrained into the psyche of a trader so they don't go messing and changing everything once these drawdowns happen.
Many problems come from traders not having sound business ideals regarding trading.
Ron
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...My calamity is My providence, outwardly it is fire and vengeance, but inwardly it is light and mercy...
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
Because there is no guarantee that you can make money with $5000. You are more likely to lose. It is better to have enough capital available to survive a draw down or your initial learning phase and then still be able to be in the market to capitalize on an opportunity.
Trying to shoestring trading will only leave you broke and unable to actually trade. There are more profitable ways to invest $5000 then trying to day trade with it.
Agree with @tturner86. My 2cents: trading is a business and just like a business you need sufficient capital to weather the start up period before you become a constant earner and the inevitable drawdowns. Its like a coffee shop or pizza business, it might take a year or two before it's established and becomes a neighbor favorite so the owners need enough money to keep the lights on before they break even....or like most small businesses they go bust sooner then later..
the problem with using a account of 5000 is you end up going with a stop that is to small for noise in the market. next you start diving into holy grail footprints and domes try to over come the problem. how to make this 4 to 8 tick stop work. i have tried that..do not go that way. hope it helps
Most basic reason is that futures are fixed multiplier. So, the amount in your account determines your leverage level. What happens when you trade a small account is that you are essentially over leveraging, meaning you are placing something like a proposition in the form of say, "I want to make 500% or -100%". If your method can only return 50% to 150% (returns beyond this are suspect in futures) and try to make it return 500% then what will happen is you will be more likely to blow out. Long term if you reload enough times your long term return will approach the 50% to 100% your method generates (or whatever it is).
So, you are correct from a purely rational perspective, if you can take a +EV bet then it doesn't matter if you have enough to make one trade or 10 trades. The bet is +EV. But, unless you are trading a method with a high winning percentage then your actual expected return will be asymmetrically skewed, i.e where you blow out 10x and make a killing 1x. One way to understand this phenomena is assume I offer you 10 billion dollars at 1% probability. What's the fair bet on that? 10,000 million/100= 100 million. Now, let's imagine i offer you this bet for everything you own (all your money, property, clothes, etc except for clothes you have on). As most people have less than 100 million dollars and the probability of any person making 10 billion is way less than 1%, the bet is strongly +EV and would also represent the highest probability you would ever have of ever making so much money. However, 99% of people would go bankrupt taking my bet. Even though, I'm giving you an incredible bet which is strongly +EV and even though it is the highest probability, by far, you will ever have of making 10 billion no matter what you do, you are almost guaranteed to go bankrupt if you take the bet. This is an extreme example of the same type of risk to reward that traders trading small accounts take. There is nothing inherently wrong with taking the bet if one is aware they are making it but most people would not want to take such a bet.
And, at any rate, this assumes you do not change the way you trade when trading a small account.
Beyond the purely over-leveraging aspect of trading a tiny account. There are several other factors that work against the trader. I will list a few issues below:
No ability to add size to best trades without over leveraging
If you have a large account you can place small "feeler" trades and add more size when you are more confident. If you are good at identifying when you are right then this allows you to weight the bets in your favor. As an example, if you have a 50k account, say your max size is 5 lots. At max size, you are leveraged 1 contract to 10k which is 50% less then you would be trading 1 contract per 5k. With 5k, if you try to add size you will be severely over leveraged. This means you have to trade much more selectively and even if you limit to 100% confidence trades, you will still be at 2x leverage.
No ability to hold over the close -- makes it difficult to adapt to changing market conditions
How many times have you seen the market jump in the last few minutes or right after the close because the bigs know that the small day traders will have to unwind? i.e. an imbalance exists. If you can't hold over the close then it makes generally a bad idea to trade anywhere near the close. Similarly, not all markets/times are highly suitable for day trading and a with a larger account you could drop your size and hold longer when markets are less volatile.
Mistakes and technical glitches more costly
Let's say you are trading 50k and due to software mishaps or technical issues, you lose $1,500. You have lost 3% of your account. If you were trading 5k, you just lost 30%!
Strong incentive to change the way you trade
Small accounts will encourage trading on smaller time frames because the fixed leverage ratio means that the longer the time frame you trade then the greater the risk. Unfortunately, we know that small time frames are dominated by sophisticated HFT traders. On the other hand, if you attempt to trade longer time frames, you will be exceeding prudent risk measures. As an example a 1% move in the S&P 500 today represents a move of around appx $1200 dollars or
25% of your account. Imagine the market will move 1% up or down and you can catch it with an accuracy 30% of that, the risk is around $400 per trade or 8% risk per trade. Basically, if you wanted that to be a more reasonable, say, 3% you'd need $14,000.
Less ability to trade multiple markets/styles
Even if you have a method that will work with a small account, you will be limited to a single system or technique, so you will be putting all your eggs into a small basket. A larger account allows you to diversify and trade multiple systems, techniques, timeframes, etc.
Having said all this...
Yes it is possible to trade futures on 5k and even less. But, it is not easy. Also, it depends on how difficult it is for you to reload. The cost and ability to reload is an important factor. This is for example why I'm trying out for a OneUp and why it can make sense when trading a small account doesn't. Let's say 5K is easy for you to replenish and let's say you think you can run it up to 15k at some probability or lose it at another. If you can reload easily, sure it is no problem. However, if it is hard to reload then you may never get the good run.
There are also psychological factors. You will need to risk a large percentage of your account every single day. Even if you can manage to somehow drop down your timeframe and you produce your 200% return, you made 10k for a year of work-- well below even a very low wage.. At some point, you will start to realize that you are working a lot for a very small small return and/or you will need to divide your time by working another job.
This is really interesting. I actually started trading futures abut a week and a half ago....with a $1700 account. I wonder where i'll be next month.
I trade via one minute charts, and by far the most annoying thing is definitely the necessarily tight stops I have to use to maintain a max of 3% risk. Consistently only about 3-5 ticks. Overall I haven't taken very many trades wither because I have to be very detailed in my interpretation of price action and entry points. Sucks.
