1) capital, as has been said. even with remarkable returns (and generally more risk) unless you have 100k to trade with bare minimum (and even with that much, you'll need a night job), you will not be able to support yourself, let alone a wife or family. 250k is a good cutoff that others have stated, if one has to support a family. 1a) budgeting. like above, even with 250k, even if you are diligent in your trading and make 100% returns a year. you can't live that extravagant, and you need to budget if you have kids, wife, etc. money goes quick. your budget needs to take into the fact that ideally your account should be outperforming the market AFTER EXPENSES =or= growing faster than your opportunity cost (what you give up in salary each year by trading. when you think of buy&hold and opportunity cost in this way, it makes no sense to devote your 100k savings to trading and quit your day job that pays a measly 40k, even if your spendings each year are capped somehow at 35k, and you make 40% gains every year. sure your account will grow and you will make money, but the risk you are taking needs to be a factor as well .... 1b) risk, realize that even the best blow up their accounts, or get greedy and go madoff on the markets, it happens and it happens without knowing it, nobody ever expects it, and nobody ever expects it when a single trade goes against them because otherwise they shouldnt have placed that trade. using the above example, let's say that after expenses your 100k account increases by 5k each year...thats a 5% return compounded annually after expenses. wouldn't it make more sense to put your money in a fund, and go back to your day job? also consider the fact that there is a very significant 1-5% chance (or more) that you LOSE IT ALL so let's compare assuming 40k of expenses per year (not very generous) choice 1: invest your 100k at 6%, take your 40k day job, break even every year choice 2: trade your 100k, make a solid return of 45%, leaving 5% after expenses to build your account ever year. factoring in a 1-5% chance that you could very will lose it all or lose money and have to go back to your job ( that you may not be able to get ) as you can see, that with this amount of capital, even if the buy&hold market is performing weak (6%) and your gains are quite impressive for a new trader (45% year after year) you'll notice that it's just not worth it, not worth the risk, not worth the work, not worth whatever. 100k is just barely enough unless your returns are incredibly outsized, 200k is more like it, but again, do you really want to trade 200k the way you would trade 100k? 2) plan/discipline/focus/humility most people have no trading plan, they have not backtested, they have not got anything new to bring to the market. the market is famous for whipsawing people out of their money. when you have no edge, when you cannot say that you are confident that you can beat the market you will lose to the market you will be scared. the people who do get this confidence get greedy and lose anyways. as a trader you need to walk the fine line between fear and greed. in the markets that is called humility, and most people don't get a good enough balance of fear and greed until they have wiped out an account or two....it's just how it goes... most traders do stupid things, they get influenced easily. even if they have a plan, they see a cool setup and want to trade it and theyll lose big, or they'll trade after hours or they'll trade a product they aren't familiar with and lose big due to different contract leverage that they weren't aware of. most people are not willing to do research, they couldn't forecast the market if you asked them to. the top traders and institutions and funds make money while retail players lose it because of 2 things 1) information and 2) they have a plan. most traders treat trading like surfing, just grabbing onto the waves and hoping to get lucky, sure this does work but it's way more helpful if you have information, and if you have an idea about the markets. 3) dedication its like online poker, really. how many people claim they make good money at online poker. EVERYONE. how many people do you actually know that make bank playing poker. I'd say probably 1% of the people I know that claim they make money. So 99% of people have to lose or not be dedicated in order for that 1% of people with the talent and dedication to win big and make it a dream. that's the way trading is. most people aren't dedicated. they don't have the time, the capital, the interest, the knowledge, the education, the resources, or whatever. if you are really dedicated to making money at poker or trading, it's actually not that hard to do.....it takes some studying, discipline, smarts, etc etc etc....but to make a living of it....that takes capital.....which brings us back to point #1.
1/ you don't start out trading witha 500k account, you earn your way up. 2/ a 10% move means a lot more to a 900,000 account, then it does to a 50,000 account. How many 10% moves happened in the past few days? many .how many traders aim for a 10% move? probably very few What can a 10% move do for a 50k account? $5000? good but not enough. What can 10% move do for a 900k account? $90k? enough to buy a small house in a week. thats the difference.
You bring up some good points. The second and third points are the responsibility of the trader and the individual. If a trader doesn't have the dedication or the discipline to follow their plan, then they really have nobody to blame but themselves. However one of the biggest points that you missed is the freedom to work for yourself. Given the choice of generating a 45% return on a $100k account vs working a $40k job with a savings return of 5% on a $100k job, I would go with the former even given the chance of blowing up (which is also the responsibility of the trader to calculate his probabilities and the decay of his edge/system).
capital is also the responsibility of the trader. this is a rich man's game. do not expect to play and win if you are poor or undercapitalized. it's like poker, you never go to the table short-stacked thinking you have an advantage. if you cannot save or obtain even 50k, you have no business trading and risking money, no matter how good of a trader you are. as for working for yourself -- yes it's a huge part of what makes trading attractive but it also makes it that much harder...how many people especially those who live in CST time zone wake up at 6 or 7 am, what about those on the pacific coast, 4, 5, am anyone? DOUBTFUL. this is why the select few who work in new york and have capital can make it big, while Jimbo in Orange County trading his IRA is going to fail
you are wrong! there is one high stake player on this site who can make $1M starting with just $5K in a matter of 60 days!!!
What are the absolutely necessary programs/fees that a serious trader must have (excluding brokerage fees)?. I'm talking about back-testing software, signal fees, etc...
Luckily I'm not undercapitalized and I live on the East Coast. The hardest part is figuring it out on my own. Plus I'm not a naturally hard working person - don't get me wrong, I'm disciplined and I force myself to work but I always feel like I'm slacking.
Where do these 100k, 250k, 100% return, 50% return, 10% return.. etc numbers come from?? There are infinite possibilities in markets. Arbitrary numbers people pick out of the air based on THEIR abilities and beliefs. I assure you there are traders that get the bulk of their income from 50k accounts as well as those that start with much more and burn it all in no time... IF YOU HAVE 250K AND YOU ARE ASKING THESE QUESTIONS BREAK IT DOWN TO SMALL CHUNKS (10K?) AND BURN THROUGH A FEW. Burning an account is NECESSARY to really learn. And as Laz said it is MUCH better to manually backtest the past few years of data bar by bar to find your system than SIM trading live.. 1. Great System (includes risk control)... trial and error.. dues must be paid. 2. Great Execution of that system. With these in place account size not as relevant as you may think.
this is a very important point....girlfriends, wives, whatever do not recognize trading as a real job often, which can cause all sorts of monetary, psychological, and stressful problems, none of which are good for trading. i like to compare trading to writing. part of the creative process is literally sitting around doing nothing. that is a legitimate part of the writing process. the same goes with trading. a ranging day could pass you by, and your wife might ask why you didnt even click your mouse the whole day, she'll tell you you need a real job and that you don't do anything. this is a real problem, because many traders get lonely/and/or/bored and start making stupid trades or join a prop firm and stop trading their system ....and as for the posters who say you can make it w/ 50k....yes absolutely you can....but the average joe needs to be holding his dayjob down while he builds his account, because only the best can make returns on 50k year after year that can sustain them and build their wealth (After expenses)