Let's talk about Capital

What is the minimum capital that you need to start trading? This is one of the most recurring questions that are asked me by those who would like to begin to dedicate themselves to this activity. The answer, as we shall see, depends on many factors and in this chapter I would like to clarify some aspects that affect the choice of initial capital.

Let's start immediately by saying that the amount we decide to allocate to the trading activity, whatever the objective we want to achieve, must not be a capital we need to 'live' or for the needs of every day. It must be, as I like to call it, an 'available capital'.

In other words, since investing is a risk activity (and so it's trading), like any other financial transaction, the money we devote to trading, if lost, must not in any way move our and our family's economic balance.

The question we must ask is, if we lose the money we have decided to dedicate to investing, do we compromise our family serenity in some way? If yes, you can either reduce the amount up to the parameters of 'tranquillity' or avoid dedicating yourselves to this activity, at least until you are in a position to have a minimum capital aside that meets the required requirements.

Recently I happened to meet a gentleman who, wanting to follow my own course during a discounted 'launch' offer to start trading using my system, asked me if I could keep the offer for a few days, to give him time to release his savings invested in accumulation plans in his bank. Since those were his only (and small) savings, I calmly advised him to let go of the course and the real operation, at least at the time, and in the meantime to start studying in free time waiting for better times (read: pending to have an 'available capital'). This I think should be the philosophy of all those who want to devote to what is defined by many as one of the most beautiful professions that can be dedicated.

After this first 'step' we try to understand what the minimum capital to devote to trading can be. Which, as we said at the beginning, depends on many factors. Unfortunately, the generation that is approaching only now for the first time to trading is the result of misleading advertising that magnifies the achievement of wealth or in any case earnings to many zeros starting from a few hundred euros.

Although it is true that with the advent of CFDs - which offer an excellent leverage on almost all financial instruments - and cryptocurrencies (which, in some cases like Ripple made over 16,000% in 2017) today it is possible to trade even a few hundred euros, it is clear that starting with a small capital we can not seriously think about to become rich, or even less, to have an extra monthly income worthy of the name.

Instead, we can reasonably think, so to speak, of 'biting ourselves' on real markets by acquiring the necessary experience. Only once we have obtained stable results, we will be able to use more capital and aim to have an extra monthly income to add to our income from work (which, in the meantime, I advise in the most absolute way not to abandon).

So we start to put stakes: if we have an 'available capital' that is around €500 this amount can be enough to start if, and only if, our goal is to check our attitudes to trading and to check if we are able to achieve positive and constant results. In other words, it can be see as a “testing capital”, used to gather experience rather than profits.

But beware: we must not run the risk of using exaggerated leverage. This means that we will have to open up transactions (and CFDs give us this opportunity) with very small lots and be content with small gains (and have small losses). Otherwise, using maximum leverage, we would risk burning the amount with very few transactions. If you want, you can go further into the topic in my article on leverage.

If, and when, the objective will instead be to have an extra monthly income, then the amount to devote to trading (and we always talk about 'available capital' in the indicated sense) must be at least 3,000/5,000 euros. Of course, the operation can not always be dedicated to instruments such as CFDs because it would be unthinkable, with this capital, to operate on different instruments that require margins far higher than those required by CFDs.

With 3000/5000 euros - of course, once you have acquired the necessary experience and a good trading method - we can set ourselves the goal of having an extra income that is around 200/300 euros per month, maintaining a low risk profile. They might seem a few in absolute terms, but if we consider the percentage return on 'risk capital', it is a respectable ratio.

P.s. Of course this does not apply for cryptos, where 10% daily gain is possible (keep in mind that 10% daily loss is equally possible)!