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Therefore, the amount of your capital limits your trading opportunities. This is why $150,000 of capital is more advantageous than $50,000. It is possible to run a DAET business with less capital. But you should understand that you must trade in the lower-price stocks, which historically may have lower volatility and may miss out on price movements in the highly capitalized, more highly priced, widely traded, and volatile stocks. Please note that many people start with $50,000 and build their capital base by shrewd trading. |
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Capital is a lot like a baseball bat. It allows you to get up to the plate and swing (trade). A larger bat may allow you to hit farther, but sometimes it makes it so hard to swing that your batting average can fall off sharply. Especially in the early stages of your trading, you should not commit an excess of capital to more positions than you can monitor carefully or your ability to close out transactions at the optimal time will be compromised. On the other hand, if your bat (trading capital) is too small, you will be ineffective, it will break, and you will strike out. Your batthe amount of trading capitalshould be sized properly for the type of hitter you are. |
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Most people feel that to be effective in the investment game you need a large amount of capital. This is very trueif you are investing. DAET traders do not invest; they trade. They buy or sell relatively small amounts of stock and turn their positions frequently. Therefore you only need enough capital to meet the margin requirements of the relatively small number of positions you hold at any given time. As a position is closed out, the margin required for that holding is available for another trade. This rolling in and out of positions allows a relatively small amount of margin capital to go a very long way. |
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Your trading capital will either grow or shrink from trade to trade depending on how successfully you have been trading. For example, if you make a quarter of a point on a 1000-share trade, your capital will increase by $250 less your commission charge. This increase is reflected immediately, and the additional capital is available immediately. However, likewise, if you experience a quarter-point loss, your capital will be reduced by $250 plus the commission charge. |
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