Why would a beginner need a large account?

Discussion in 'Trading' started by Blitzjoker, May 30, 2023.

  1. Blitzjoker

    Blitzjoker

    I have been trading as an amateur for around 7 or 8 years, and in that time have done reasonably well some of the time, but have gradually lost money overall, probably around £2000 over that time, which from some of the stories on here, doesn't seem too bad.

    I have never funded my account with more than £1000. Currently it is around £300 and has been for some time. I trade every day to learn how to do it better.

    Time and again I see the advice not to trade unless you have a large account (£10000 + seems common).

    Given that most traders, and presumably nearly all new traders, lose money, to have a large account when you start would seem to be very foolhardy.

    While you will never make much money with a small account, there are enough online brokers out there who will let you invest for very small stakes while you learn how to trade competently.

    My day job is trading secondhand books, which started on a shoestring but now makes a healthy income. I regularly spend thousands of pounds on buying books, because I know what I am doing. However, when I started out, it was daunting to spend £100 on a book, and I made many mistakes.

    It seems to me to be the same with trading stocks/indices/forex or whatever. Until you know what you are doing, it is madness to trade in large amounts. If you ever get any good at it, use your profits to increase your trading size, and eventually you will have a large account to trade. Am I missing something here?
     
  2. Sekiyo

    Sekiyo

    The only reason why a beginner would need a large account is to keep risk & expectations realistic.

    Small accounts lead to unrealistic expectations and unbearable risk taking.

    The other thing is … let’s assume the trader has an edge … he might be forced to bet more than the optimal size which makes ruin almost guaranteed.

    If the minimum bet size is 50$ and our optimal size is 30$ then we’re over betting by 20$.

    Betting more than your edge implies is catastrophic.

    Now with micros and fractional shares it lowers the margin required to bet within the optimal zone but still … the human side of the equation is the weakest link.

    I don’t believe that anyone with less than a 100k account would be satisfied with a 20% annual return.
     
    Last edited: May 30, 2023
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  3. deaddog

    deaddog

    There is nothing wrong starting small. If you can't grow a small account, you probably won't grow a big one.
     
  4. 2rosy

    2rosy

    Depends on the market and your role in it.
     
  5. kmiklas

    kmiklas

    “A man needs an education, and a man has to pay for it.”

    I went in big for years because I wanted to feel the pain… to learn.. to take my lumps. Let the market beat me up and teach me. Not to say I wildly gambled: I always had a concept or an idea. That being said, I took a 29% loss in one day.

    The temperament of the trader, including their attitude and risk tolerance, matters.

    Now I work the fixed income markets and it’s easier to go all-in because I don’t take the dramatic losses (or gains). With the inverted yield curve it’s easy to hold short-term bonds to maturity, bank a solid 5%, and not risk a big loss. Yes I lose a bit to inflation and the yield curve creeping up on me, but it’s nothing compared to an equities loss.
     
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  6. smallfil

    smallfil

    Focus on the process as one trader said. The monies will come when you are doing things right. You do need trading capital to start. I think $3,000 should be more than enough. Does not mean you will trade and risk that $3,000 all on one trade. You need to focus on risk management and position sizing. A lot of traders ignore that. Big mistake because you increase your chances of blowing up. Academics did some studies and they determined that you should not risk more than 2% in any given trade. As your account grows, that 2% as a percentage of your account grows too.
     
  7. %%
    A BIG advantage of starting with a big account to learn;
    a hard head would remember the large losses, not so much with a small account LOL:D:D.Dont try this @home.
    Maybe be better to add to a small account, since dual income stream can prove to be better better .
    Certain profitable markets like RE may be more difficult to start small.
    A possible big win , when a person does not know what he is doing \seems counter productive also.:caution::caution:
     
  8. Hello Blitzjoker,

    Depends on skill and trading style.
     
  9. Blitzjoker

    Blitzjoker

    Perhaps I am lucky, but I get all the education I need from a small account, though I have found that paper trading is not the same as losing even trivial amounts of real money. I would recommend it to anyone who is serious about learning to trade properly.

    I can bet £0.10 per point on the SPX, and even with a tiny account can keep risk manageable compared to equity. I appreciate this may not be possible everywhere, as I use a spread betting account in the UK, and this is not available everywhere. If I am able to trade profitably consistently, I would hope to build the account slowly over time. No need to lose a lot of money to teach me anything though; losing a small amount tells me well enough that I may have done something wrong.
     
  10. Blitzjoker

    Blitzjoker

    Precisely so.
     
    #10     May 30, 2023
    murray t turtle likes this.