If you want to start with systematic trading, the capital that you need will depend on the market that you are trading stocks with. In the Australian market, the minimum trade size is $500. So that means if you have $500, you can make one trade which is a dangerous place to be. If that goes in your favour, you’ll make money. If it goes against you, you’ll lose money. You can’t take another trade if you lose money because you don’t have enough to take the next trade. There are systematic approaches to edging into the market if you’ve got a couple of thousand dollars in Australia. If you have $1,500, my general approach is to find a system that you’re comfortable with, trade that system with the minimum trade size, which is $500, and paper trade the rest of the system. Trade like you have a $10,000 account; take some trades with cash or paper. As you’re trading stocks and your account grows, eventually you’re going to take more real trades.
But you should also go through your day job and save money into your investment account. That will allow you to take more and more trades and gradually shift from the smallest amount of cash and paper trading to cash and less paper trading.
You can start with the intent of having a $10,000 account, even though you only have $1500. Just trade like you’ve got $10,000, but some of the positions are cash or paper, and then evolve it into a full proper trading account over time.
For other markets where there’s no minimum trade size, you can start with much less money, as long as the brokerage is small. If you’ve got cheap or free brokerage and you can take a $50 trade or a hundred dollar trade, then you can start trading stocks with a few hundred bucks. It just depends on which market you’re in, on what country you live in or what market you want to trade.
Don’t let your lack of capital be a barrier because the most important thing is that you learn how to trade, take a systematic approach, backtest that system, build confidence in it. Once you’ve got an approach that you’re confident in, you’ll be surprised how much money you can make. When you’re all nervous and unsure on how to make money in the markets, it’s hard to take money from other parts of life and put it into the stock market. But when you’ve got a system that you’re confident in, backtested it, done the pressure testing, worked on that system, and you understand it, then you’ve built that confidence. It’s easier to have one less latte a day and save a bit of money and direct it into the markets instead of into socializing. You can find that money more easily when you’ve got the conviction.
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