Undercapitalization

Discussion in 'Trading' started by quantdropout, Dec 2, 2005.

  1. Thank you for your insight.

    The monthly costs include:
    Briefing.com $300
    IBD $25
    Pristine $50
    Quotrek $50

    I'm not sure if that is way out of wack for his capital size.
     
    #11     Dec 5, 2005
  2. That is $5,100 a year in expenses. That will require a 41% "gain" during the first year in order to break even and 65% gain to make the $3,000 return. To state the obvious, it makes things more difficult.
     
    #12     Dec 5, 2005
  3. Chagi

    Chagi

    This is a very important point, and something that the original poster should take careful note of. I personally feel that trading should be approached as a business if one is looking to do so part-time or even full-time, and costs are a huge factor in whether or not you will be successful.

    For example, I too am undercapitalized. That is fine for the moment, because I am trading right now for the sole purpose of gaining some practical experience while I'm finishing up uni, but it is a major obstacle for me in terms of becoming profitable. Once I am done uni, do I want to be devoting as much money as possible to building up my trading account, or do I want to be paying large sums of money for things that I may not need?

    For example, one issue that I identified early on, and devoted a great deal of time to, was the cost of quote feeds. I did quite a bit of research, and was concerned because I was seeing that a "good" feed appeared to cost roughly $200-$300/month (depending on features), which is $2400-$3600 per year. Sorry, but that money is far better off building my account than going into Esignal's pocket. :)

    Point is, I finally stumbled across QuoteTracker, found a low cost quote feed (IQFeed), and now pay a fraction of what Esignal would cost me for what I need. I would suggest that your friend consider this carefully as well, particularly the $300/month news feed. Heck, I'm carefully considering right now if I should subscribe to the AP news feed, and that is only $15/month or so....

    Beyond that, if your friend has it in him/her to be a good trader, he/she will succeed regardless of capitalization, it is just a matter of finding the right strategy. I can't quote it exactly, but in Reminiscences of a Stock Operator, the character talks about being able to win at games that are clearly rigged against him (bucket shops). I'm currently undercapitalized, I have a crappy, expensive broker, and I have to pick very good trades to even have the possibility of breaking even on a trade due to the above. I lost a small amount of money (15% of my account) during my first 5 months trading (Summer 2004 to end of year 2004), and this year I am solidly in the black.
     
    #13     Dec 6, 2005
  4. Hi All,
    A down to earth consideration.
    As by popular wisdom 95% of the participants don't make money - figure NEVER seriously disputed - it follows that 'Undercapitalization' must be widespread.
    The moment that one becomes aware of this condition depends mainly on how fast and often you trade.

    nononsense
     
    #14     Dec 6, 2005
  5. #15     Dec 6, 2005
  6. patch227

    patch227

    Plus if you are undercapitalized the losses hurt a lot more
     
    #16     Dec 8, 2005