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One of the decisions that all traders (especially new traders) face is how much trading capital to trade with (i.e. how much money to deposit into their trading account).

The Simple Answer

The simple answer to this question is as much as they can afford. The reason for this is that the amount of trading capital directly affects the markets that they can trade, and most importantly, the amount of risk that their trading has to endure in order to be profitable.

For example, a trader with $100,000 (or €, or , etc.) of trading capital can trade any markets that they prefer, with multiple contracts (or shares, or lots, etc.), and can do so with low risk (i.e. the risk of each trade being less than one percent of their trading capital). Whereas a trader with only $5,000 (or €, or , etc.) of trading capital is limited to trading markets where the margin requirements are less than $5,000, with only one contract, and even then, their trading will probably have to endure medium to high risk in order to be profitable.

The Complicated Answer

The complicated answer is that there is no simple answer, because the risk of each trade (and therefore the minimum amount of trading capital) varies dramatically from one market to another, from one trader to another, and also from one trade to another.

For example, a day trade on the Euro to USD futures market might require a stop loss of ten ticks (a price change of 0.0010), which at $12.50 per tick would mean that $125 of trading capital was at risk. In order to keep the risk of the trade under one percent (i.e. low risk), the trade would require $12,500 of trading capital. Note that this is $12,500 per contract, so a trade with five contracts would require $50,000 of trading capital.

As another example, a swing trade on the Hang Seng futures market might require a stop loss of forty ticks (a price change of 40), which at HKD 50 (approximately €5) would mean that HKD 2,000 (approximately €200) of trading capital was at risk. In order to keep the risk of the trade under one percent (i.e. low risk), the trade would require HKD 200,000 (approximately €20,000) of trading capital. Again, note that this is HKD 200,000 per contract, so a trade with five contracts would require HKD 1,000,000 (approximately €100,000) of trading capital.

The Realistic Answer

The realistic answer is that most new traders have a limited amount of trading capital, which they usually find is not even close to the amount of trading capital that they actually need. However, by choosing their markets carefully, by being a very disciplined trader, and most importantly by managing their risk so that it is as low as possible, it is possible for a trader to take a small trading account and turn it into a large trading account.